Chairman's statement
Building on strong foundations for the future
This is my first statement in a G4S annual report, having taken over from Alf Duch-Pedersen as chairman of the board in June 2012. Neither Alf nor I appreciated then the extent of the challenges the group would have to face during the second half of 2012.
However, although my first few months in office were something of a baptism of fire in some respects, I am pleased to say that we have come through these difficulties and have learned a lot as well. It is important to keep a sense of perspective too.
The group operates in so many parts of the world, providing vital services to thousands of customers and doing so to the very highest standards. This underlying strength in depth is reflected in the company’s results for 2012.
Introduction to the role
As part of my planned introduction to the role of chairman, I have had the opportunity to visit a variety of the group’s operations in different parts of the world and have met with many of its senior leaders in a range of forums. I have been extremely impressed by the enthusiasm and professionalism of the group’s managers.
I have also been able to meet most of the company’s larger shareholders. Keeping in touch with investors is an essential part of my role and I intend to maintain regular contact with them in future.
Financial performance
The macroeconomic conditions in many of our markets continue to be difficult.
In much of Europe, growth is non-existent and the problems with US Government spending are well known. Against this backdrop, the group’s results in 2012 are strong, with good organic growth overall and excellent cash conversion.
Our wide geographical spread and involvement in developing markets with higher GDP growth has stood us in good stead and in developed markets where outsourcing trends are strong, we continue to make good progress. In the light of this performance and in view of our confidence in the group’s strategy, the directors propose a final dividend of 5.54p (DKK 0.473) per share, payable on 14 June 2013.
With an interim dividend of 3.42p (DKK 0.322) per share paid on 19 October 2012, the total dividend for the year will amount to 8.96p (DKK 0.795) per share. This represents a 5% increase on the total dividend for 2011.
Reputation and risk management
No consideration of the company’s performance in 2012 can ignore the Olympics contract. It made headlines and brought us to the public’s attention, especially in the UK, and for all the wrong reasons.
With help from PwC, the board conducted a thorough review of the circumstances surrounding the group’s performance on delivering the Olympics contract to ensure that the reasons for the problems were properly understood and so that any necessary remedial actions could be identified and taken. It was very important to me as the new chairman, and to the whole board, that we took whatever steps were necessary to learn these lessons, no matter how painful this process might be.
We are satisfied that there was no systemic problem in the way that the group operated its business and that it was the unique nature of the Olympics contract and the compressed timeframe in which it had to be delivered which were at the heart of the group’s failure to deliver all that it should have done on this occasion. Nevertheless, we have introduced stronger mechanisms for reviewing risks in general and contract risk in particular, including lowering the value threshold for contracts requiring board approval.
The new, strengthened, Risk Committee will be a focus for this activity and a newly created chief operating officer role will increase the ability of the executive team to ensure that risk management is at the heart of key business decisions.
The board review also concluded that there had been no significant shortcomings in Nick Buckles’ performance, nor any serious failings attributable to him in connection with the Olympics contract. Consequently the board decided it was in the company’s and its stakeholders’ best interests that he should remain as our CEO. I was and remain entirely confident that this was the right decision.
Away from the media frenzy in the UK in the summer, hundreds of thousands of the group’s employees continued to provide outstanding service levels in what can sometimes be difficult and occasionally dangerous circumstances. Any objective assessment of the group’s capabilities should of course be based on the excellent work which the group has always provided and continued to provide throughout 2012.
We understand though that reputations are hard won and sometimes too easily lost, so we are determined to repair the damage the group suffered in the summer by continuing to do what we do best and doing it well.
Rebuilding the trust and confidence of the UK Government in G4S is an essential part of that process of course and the settlement with the organising committee of the Olympic Games and recent contract awards by UK public bodies are indeed good news.
The board
2012 saw change on the board, with the retirement of Alf Duch-Pedersen and my appointment as his replacement. I would like to thank Alf for his service to the group, both as chairman since 2006 and before that as a director of the company and its predecessors. Continually refreshing a board is not just a corporate governance nicety, it is also vitally important if a board is to function as effectively as possible.
The Nomination Committee has therefore considered carefully the range of skills and experience which the board needs and has taken account of the fact that, over time, we will lose the skills and experience of some of our current board members as they retire or move on.
I am delighted therefore that we have been able to recruit Paul Spence and Adam Crozier and that we will shortly be joined by Tim Weller. Their qualities will be invaluable to the board and to the group as we continue to develop the business.
At the conclusion of this year’s AGM, and having served for nine years, both Paul Condon and Bo Lerenius will retire from the board. The whole board will be sorry to see them go and I am very grateful for their support in the short time we have worked together.
As usual, the board conducted a review of its own performance in 2012. Taking account of the conclusions of that review, the board has set itself a number of clear objectives for 2013 and I intend to report in future on how the board has performed in relation to them.
The future
2013 will be a time of both change and consolidation for the group. There have been a number of changes at both board and group executive committee level and there will be new challenges involved in making our new risk management processes a seamless part of the way we operate and in ensuring that our services always meet or exceed our customers’ expectations.
The group will however continue to grow and develop and I have learned in the short time that I have been involved with the company that, in this aim, it is well served by dedicated and professional employees all over the world.
John Connolly
Chairman