Annual Financial Report

  • 17 Apr 2015 07:16
G4S plc has published its Annual Report and Accounts for the year ended 31 December 2014. Further to the preliminary announcement of its results for the year ended 31 December 2014 which it made on 10 March 2015, G4S plc, the international security solutions provider, announces that it has published its Annual Report and Accounts for the same period
Handshake

The full Annual Report and Accounts and a statement from the company's outgoing auditor, KPMG Audit PLC will be posted to shareholders who have elected to receive printed copies in due course. The document includes the notice of the company's Annual General Meeting which will be held on Thursday 4 June 2015 at 11.00am at The Platinum Suite, ExCel London, One Western Gateway, Royal Victoria Dock, London E16 1XL. A proxy form for the company's Annual General Meeting will be sent to shareholders other than those who have elected to receive shareholder information via electronic communication.

The Annual Report and Accounts, including the notice of meeting and explanatory notes accompanying it and a statement from the company's outgoing auditor, KPMG Audit PLC, have been submitted to, and will be available from, the National Storage Mechanism.

A condensed set of the company's financial statements and extracts of the management report were included in the company's preliminary final results announcement.

That information, together with the Appendix to this announcement, which contains additional information extracted from the Annual Report and Accounts for the year ended 31 December 2014, constitutes the material required for the purposes of compliance with the Transparency Rules and should be read together with the preliminary final results announcement.

This announcement should be read in conjunction with and is not a substitute for reading the full Annual Report and Accounts. Together these constitute the information required by DTR 6.3.5, which is required to be communicated in unedited full text through a Regulatory Information Service.

References in this announcement to the company's website are intended to refer only to the specific documents mentioned herein and not to other information available on that website.

Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts.

APPENDIX
Principal risks and uncertainties:
A description of the principal risks and uncertainties that the company faces is extracted from pages 45 to 50 of the 2014 Annual Report and Accounts.

Health and Safety

Risk description

The provision of integrated security services, often in hostile or dangerous circumstances across such a broad diversity of countries presents particular health and safety challenges.
The protection of our staff, people in our care and third parties, including the public, is of utmost importance. We believe that accidents are preventable and that “zero harm” is an appropriate goal. We put safety first and prioritise the wellbeing of our employees, setting the benchmark for health and safety across the industry.

The principal health and safety risks are work-related attacks and road traffic accidents. In 2014, 41 (2013: 49) employees lost their lives. We are committed to strengthening our health and safety systems, processes and cultures.

Fatalities and serious injuries to our staff impact not only the individuals concerned, but also their families and loved ones.

Movement since 2013 (movement) (stable)

We added Safety first as a core value for the group. We appointed a group head of health and safety to provide leadership to our existing network of health and safety professionals across the group. We have introduced an enhanced Health and Safety (H&S) management system which has further developed our capabilities and processes.

This has included increasing the personal responsibility borne by country Managing Directors for incident reporting and investigation of serious injuries, and an enhanced safety leadership training course for senior management. We have rolled out a road safety programme called Driving Force Rules and strengthened governance around firearms management.

Mitigation priorities for 2015

Compliance with our core H&S standards will continue to be monitored and periodically audited, with reviews of performance at a regional, group and board level via the CSR Committee.

Management incentives are aligned to safety best practice. Detailed assessments of H&S practices in a number of high-risk countries will be undertaken, with implementation of the resulting action plans being personally monitored by the country or business leader. This „Step Up‟ initiative will be part of a broader program, encompassing the roll out of safety leadership training to managers across the group, as well as implementation of a process whereby business leaders report and take ownership for follow up, close out and sharing of lessons learnt for any serious work-related incidents.

We will continue to develop our road safety toolkits, and the Service Excellence Centres will continue to develop our mitigating strategies with regard to attacks on our people. Our Health and Safety management system will be augmented with the introduction of toolkits and templates to support implementation in local businesses, and we will review the training for our H&S practitioners across the group to ensure they are equipped to implement these enhanced procedures. An enhanced IT system for incident reporting will be implemented and self-assessments of H&S control compliance will be integrated into the risk management and audit IT system.

Culture and Values Risk description

G4S provides security to people, premises and valuable assets. In its care and justice services businesses it also provides services which interact with detainees, victims of crime,
those on state assistance, vulnerable people and other members of the public. This requires our staff to conduct themselves with the utmost integrity. We operate in more than 110 countries around the world with a diversity of local and national cultures. These factors mean that having a strong set of corporate values that unite the organisation deeply embedded in our culture is of particular importance.

If we fail to behave in accordance with the high standards that we set ourselves, there is a risk that we will not deliver on our commitment to customers, and fail to comply with legislation and international standards. We may also compromise the safety and security of our employees and the assets or people that we are protecting.

This can lead to penalties, failure to renew contracts and ultimately reduced profitability and damage to our global brand and reputation.

Movement since 2013 (Down)

We have completed a corporate renewal programme which has been assessed by the UK government. The G4S values were re-launched globally, with the addition of the Safety First value and an emphasis on delivering long-term sustainable value for customers, employees and shareholders.
We have continued to embed our human rights framework, based on the UN Guiding Principles on Business and Human Rights, into the group's practices, such as our risk and compliance systems and processes.

Corporate governance has been enhanced through the Enterprise Risk Management process and introduction of Regional Risk and Audit Committees. Leadership training has been undertaken, and management performance incentives explicitly linked to all of the values were implemented.

Mitigation priorities for 2015

On-line management training will be implemented covering all of the G4S values. Demonstration of the values will continue to be integral to management performance contracts in 2015. Improved whistleblowing processes are also being implemented.

A values self-assessment programme will benchmark managers‟ views of performance versus the group values and a global employee and management survey being undertaken this year will provide essential feedback on how the values are working in practice across the organisation.

People
Risk description

We are a people business and we take great care to ensure that we employ the best people to deliver quality services to our customers. We employ 623,000 people world-wide, and are the largest security solutions provider in the world. This means we have expertise in screening and training, which together with our integrity and trustworthiness is an important factor in why customers choose G4S.

In a global and diverse business such as ours, there are inherent risks associated with recruiting, motivating, developing and training employees on a large scale, as well as appropriately rewarding and retaining our critical talent and ensuring effective succession in management roles. Screening is also a particular challenge in some territories which lack supporting infrastructure from the relevant authorities. In these territories we identify alternative measures which are approved by group HR to mitigate this risk as much as possible.

Failure to recruit, retain, motivate and develop key managers, sales professionals and front line staff can affect customer service, customer retention and sales growth, impacting our financial performance.

Movement since 2013 (stable)

G4S‟ human resource processes are well established and effective. During 2014 we appointed a significant number of new individuals to management positions in regions and countries around the globe. This has included recruitment from a range of high quality companies both within and outside the security sector, as well as the promotion of internal talent. We have also invested significantly in strengthening our sales resource.

In a low-margin, low-salary business there will always be challenges in retaining staff, and in particular we experience this as a challenge in Africa and Europe.

Mitigation priorities for 2015

On 1 July 2015 Irene Cowden will retire as group HR Director. She will be succeeded by Jenni Myles, who since 2011 has been the HR Director for North America and Latin America, having been with G4S since 1998. In 2015 our management incentives will be further reviewed to ensure they are competitive, motivational and drive the right behaviour, in line with our values and business objectives. Common talent review processes will be cascaded throughout the organisation, supplemented by the introduction of new leadership development programs.

This will strengthen our succession plans and support retention of key talent. To help employee retention at all levels of the organisation, the global employee and management surveys will be undertaken in the first half of the year, providing rich insight into our employees‟ opinions. This will assist in identifying priority areas for action, which will be implemented and tracked across the remainder of the year. The recruitment of operational employees will be augmented by sharing best practices across the group and providing detailed guidance and oversight to ensure appropriate screening standards are met.

Brand and Reputation
Risk description

We provide our customers across the world with a wide range of high quality, well controlled services. Nevertheless the nature of the group's activities means that we can face high inherent reputational risks related to the countries in which we operate, the services we provide, the customers and suppliers we work with, the people in our care and our interactions with members of the public with whom our colleagues come into contact.

Our reputation can be damaged when we fail to meet our own standards or the expectations of our key stakeholder groups. Service failures or behaviour by G4S or its partners which does not meet those standards can result in adverse publicity and damage to the group's reputation.

Movement since 2013 (down)

In the UK, we have significantly improved our relationship with central government following some high-profile issues which were raised in 2013, and we have since won new contracts. Globally we have implemented a process for reviewing all business opportunities with regard to our values and the reputational risks they bring. This enables us to make appropriate decisions whether or not to bid. There were material opportunities during 2014 which we decided not to bid for.

On occasion, services we provide meet significant challenges which exceed our reputational risk appetite, at which point we look for alternative options, which may result in non-renewal of existing contracts or disposal of certain businesses.

Mitigation priorities for 2015

We are embedding human rights due diligence processes and reputational considerations into our systems for evaluating new market entries or bidding for new contracts. We are also reviewing and auditing our performance on human rights in existing markets which are considered to be high risk. Customer satisfaction monitoring is being implemented across the group.

We are promoting G4S values and communicating our desired behaviours with colleagues across the group; engaging proactively with ethical and sustainability ratings agencies and analysts; and increasing our dialogue with customers on high profile contracts and issues. We have invested in an enhanced corporate media team to develop relationships with and educate commentators and journalists; and are implementing a programme of political risk management and engagement to continue to build relationships with politicians and regulators.

We are also enhancing our whistleblowing and case management processes, to ensure that employees can raise issues of ethics to the highest level of the organisation and to enable
us to identify trends and emerging reputational risks.

Major contracts
Risk description

The group has a number of long term, complex, high-value contracts with multi-national, government or other strategic customers. The group's growth strategy includes a greater focus on higher value, and more technology-rich services. This will increase the complexity and uniqueness of customer requirements and contracts.

For such contracts there are risks to the group accepting onerous contractual terms; mobilising contracts well; transitioning effectively from mobilisation to on-going contract management; delivering to contractual requirements; and managing complex billing arrangements, contract change control and sub-contractors.

Failure to ensure effective contract take-on, mobilise successfully and manage complex contracts effectively throughout their lifecycles can impact the group's liabilities, customer satisfaction, reputation, revenue, cash flow, and profitability.

Movement since 2013 (down)

We have established Group and Regional Investment Committees.
In the UK, we have implemented a major contract approval process with oversight from these committees; strengthened the contract on-boarding process; and rolled out a 360° contract review of all aspects of our most significant contracts.

A quarterly financial review of the top 200 contracts across the group has been implemented. Regional legal counsels and regional finance directors now report directly to the group legal counsel and group CFO, providing greater independence. Group internal audit has recruited a specialist contracts auditor to audit both individual major contracts and also the effectiveness of the processes described above.

Mitigation priorities for 2015

The new major contract approval, and 360° contract review processes implemented in the UK during 2014 will start to be rolled out globally in 2015.

Delivery of core service lines
Risk description

We deliver our core secure solutions services in 91 markets and our core cash solutions services in 62 markets. A number of these businesses have been acquired over time, resulting in cultural differences, varying degrees of operational maturity and multiple information systems.

This can create risks around core operational service delivery and supporting functions. Failure to meet the service delivery requirements of our customers, because we have not implemented the right solutions or followed appropriate agreed procedures, can create risks around cash losses; attacks on our staff, subcontractors or third parties; and the non-delivery of the service level agreements and KPIs agreed with our customers.

Additional risks relate to business resilience, control systems, and the availability of critical systems, facilities and people to perform contractually agreed services.

This can lead to financial penalties, and negatively impact customer retention and goodwill, to the detriment of financial performance.

Movement since 2013 (stable)

G4S has continued to focus on developing and consolidating IT platforms, implementing the Service Excellence Centre programmes of standardisation, and driving and monitoring contract formalisation processes across our developing markets.

We have recruited new chief operating officers in a number of regions and countries to drive the operational standards expected from our customers.

Mitigation priorities for 2015

The G4S Way supports the best practice processes and standards for all aspects of service delivery with the aim of improving service excellence and margin.

Development of our technology solutions strategy and innovation in cash services will provide added value to our customers. Our risk management is being improved by integrating the Service Excellence Centre operational standards into our Governance, Risk and Control tool. This is supported by the continued implementation of our Service Excellence Centre standards through an Accelerated Best Practice programme.

A programme of customer satisfaction monitoring is being implemented across the group.

Laws and Regulations
Risk description

G4S operates in many jurisdictions globally, with complex and diverse regulatory frameworks.
An additional complexity arises from the extraterritorial reach of some of the legislation to which the company is subject.

Risks include increasing litigation and class actions; bribery and corruption; failure to obtain operating licences; non-compliance with local tax regulations; changes to employment legislation; non-compliance with human rights legislation; and new or changed restrictions on foreign ownership. Risk also arises from new or changing regulations which require modification of our processes and staff training.

Non-compliance with applicable laws and regulations could have far-reaching consequences, including higher costs from claims and litigation; inability to operate in certain jurisdictions, either through direct ownership or joint ventures; loss of management control; damage to our reputation; and loss of customer confidence.

Movement since 2013 (stable)

Our internal policies and procedures clearly set out that most of these risks, including compliance with local laws and regulations, are the direct responsibility of local management.

An Ethics Steering Group has been formed to provide oversight and support compliance with the internal policies and procedures to mitigate the risks. Specifically, whilst ownership of implementing anti-bribery and corruption policies lies with the business Managing Directors, our legal communities have been assigned compliance oversight with a direct escalation route to the group legal counsel. Also, where group internal audit has identified non-compliance, for example with licensing and labour regulations, these have been reported and acted upon.

Mitigation priorities for 2015

The Ethics Steering Group will strengthen its effort to provide compliance with internal policies and procedures and we are introducing new systems and processes for whistleblowing and incident management. We will be implementing a process for political risk management to ensure that we are monitoring regulatory and other emerging political risks within our key markets. This process will be supported by a programme to enhance our engagement with regulators, politicians and political influencers across the group.

G4S continues to liaise with relevant governments and authorities to positively influence the regulatory environments in which we work.

Growth strategy
Risk description

Our growth strategy is to leverage our expertise to expand our core service lines into more complex outsourcing areas which increase long-term customer partnerships; to focus on organic growth opportunities with less reliance on acquisitions; and to leverage our expertise in security systems technology across key markets.

There are risks that we will lose contracts or growth opportunities through price competition and market changes; that we fail to successfully enter target markets or territories; that we become over-reliant on large customers; and that adverse government legislation changes could impact on our growth potential or force exit from markets and territories.

Failing to create higher value solutions that differentiate us from local commoditised competitors could impact targeted growth in revenues and margins.

Movement since 2013 (down)

We appointed Mel Brooks as group strategy and commercial director and developed and enhanced the leadership and capacity of the regional commercial and strategy teams. We have implemented a global account management structure and established an „outbound‟ programme for working with Chinese and North American multinational clients. We have been innovating and developing our core service lines through the application of technology and consulting services. The major elements of the growth strategy have been allocated to specific members of the group executive committee to ensure integrated ownership.

Mitigation priorities for 2015

We are making significant investments in our sales and business development systems and capabilities. We are developing our customer relationship management tools as well as our approach to global account management. We are taking a more rigorous approach in the monthly regional pipeline reviews and instilling improved contract pipeline management disciplines.

Geo-political
Risk description

We operate in more than 110 countries across the developed and developing world, with wide-ranging government and political systems, differing cultural landscapes, and varying degrees of rule of law; and within conflict and post-conflict zones. The risk factors range from political volatility, revolution, terrorism, military intervention and insurgency. The geo-political risks we face impact us in many ways: the health and safety of our staff and customers; the continued operation of our businesses; and the ability to secure our assets and recover our profits.

Movement since 2013 (up)

We perceive the inherent external threat to have increased in the last year given the backdrop of an increased global terror threat, the seizure of territory by Islamic State, tensions in Ukraine, and potential increase in political instability and the risk of civil unrest in parts of Africa, Europe and Latin America. Given the wide range of countries in which the group operates there will always be some with a degree of serious political instability. We take great care with our operations in these countries to monitor the situation closely and respond appropriately.

Mitigation priorities for 2015

We have a great deal of experience of operating in a wide range of difficult territories. We collaborate with our local partners and/or agents; conduct early risk assessments before and during security assignments; have robust operating procedures; and work closely with our local and global customers in managing the risks of operating in such environments. We have a global process for assessing the geopolitical risks of different countries which determines the types of customers we will serve and the types of services we will provide.

Information security Risk description

The clients, staff, suppliers and partners of G4S that entrust their sensitive and confidential business information into our care rightly expect that we will take all reasonable steps to protect it.
Given the high-profile nature of some of G4S' operations globally, we are at risk of cyber and physical attack by criminal organisations and individual hackers. There is also the risk that an individual with legitimate access to business information could disclose it inappropriately, or that an insider could disrupt the availability of key systems.

An information security breach could result in: censure and fines by national governments; loss of confidence in the G4S brand and reputation; specific loss of trust by clients, especially those in government and financial sectors; and disruption to service delivery and integrity, particularly in cash solutions business operations.

Movement since 2013 (up)

The sophistication of hackers continues to increase and we see a broad range of other corporates coming under attack. Given the high profile G4S has, and the nature of our business, we believe the threat of external attack has increased over the year.

G4S constantly monitors attacks against its systems and takes steps to safeguard business information entrusted to us. A new set of Mandatory Minimum Security Controls have been developed and we have assessed each of our businesses‟ compliance to these standards, developing plans where improvements need to be made. Additionally we have assessed the operational level security of over 600 systems, capturing a risk assessment of each system in line with our group standards.

Additionally a group IT Auditor was appointed to provide independent assurance of our Mandatory Minimum Security Controls and Systems Risk Assessments.

Mitigation priorities for 2015

G4S will continue to manage risks to information by integrating the information risk framework with the global risk framework, and will ensure that risks above the risk appetite are appropriately managed. The G4S global information security centre of excellence will develop best practice in coordination with regional and business unit committees, through the publication of policy and the identification of risk with appropriate mitigation strategies.

We will be implementing new monitoring and compliance systems throughout 2015 to increase our controls over the unstructured information assets held on computers, file systems and email.

Cash losses
Risk description

We have cash solutions businesses spread across the world responsible for cash held on behalf of our customers. We provide cash transportation from one site to another in high-security vehicles, a range of cash management services including secure storage, counting, reconciliation and sorting of notes for ATMs; a range of ATM services; and secure international transportation of cash and valuables.
There are inherent risks in this business related to external attacks, internal theft and poor cash reconciliation.

Cash losses can have a major impact for our customers and ourselves in respect of loss of profit, increased cost of insurance and health and safety considerations for our staff and the public.

Movement since 2013 (stable)

Through the work of the Service Excellence Centres (SECs) working with the regions, improvements have been made to processes and systems in many of our cash solutions businesses over the course of 2014. Responsibility for auditing cash reconciliation in our cash processing centres has been transferred from the cash solutions SEC to group Internal Audit.

Mitigation priorities for 2015

Our cash solutions SEC and group Internal Audit work in collaboration with the regions to embed robust procedures into every cash business to mitigate cash losses. Innovative security defence products are in use, ranging from pavement box tracking to vehicle protection foam and protective pavement boxes.

All cash transactions are subject to strict authorisation limits and we have controlled cash reconciliation procedures that are undergoing implementation across the group to ensure cash is fully accounted for and controlled. Those procedures are subject to audits and a new system will be implemented in 2015 for businesses to conduct self-assessments twice a year.

The outcome will be controlled centrally at group level. In 2015, we will be working to harmonise the standards of cash reconciliation audits with those of group Internal Audit. We also have a robust process to monitor all cash related loss incidents through a team of physical security specialists and we ensure that lessons learned are shared through the SEC.

Following a reorganisation at the end of 2014, during 2015 G4S will be integrating its UK & Ireland and European cash solutions businesses under the leadership of Graham Levinsohn. As well as strengthening our go-to market offering this will also enable enhanced development of best practice, which will be transmitted via the cash SEC to our cash solutions businesses in the rest of the world.

Statement of directors’ responsibilities:

The following responsibility statement is repeated here solely for the purpose of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from page 88 of the 2014 Annual Report and Accounts. Responsibility is for the full 2014 Annual Report and Accounts not the extracted information presented in this announcement and the preliminary final results announcement.

“The directors are responsible for preparing the Annual Report and the group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to:

  • Select suitable accounting policies and then apply them consistently;
  • Make judgments and estimates that are reasonable and prudent;
  • For the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
  • For the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and
  • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors‟ Report, Directors‟ remuneration report and Corporate governance Statement that comply with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.”

Directors’ responsibility statement
Each of the directors, the names of whom are set out on pages 52 and 53 of this annual report, confirm that, to the best of his or her knowledge:

  • The financial statements in this annual report have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit of the company and the group taken as a whole; and
  • The management report required by DTR4.1.8R (contained in the Strategic Report and the Directors‟ report) includes a fair review of the development and performance of the business and the position of the company and the group taken as a whole, together with a description of the principal risks and uncertainties they face

The Strategic Report from the inside front cover to page 50 and pages 89 to 95 includes information on the group structure, the performance of the business and the principal risks and uncertainties it faces. The financial statements on pages 99 to 164 include information on the group and the company's financial results, financial outlook, cash flow and net debt and balance sheet positions.

Notes 22, 26, 27, 30 and 31 to the consolidated financial statements include information on the group's investments, cash and cash equivalents, borrowings, derivatives, financial risk management objective, hedging policies and exposure to interest, foreign exchange, credit, liquidity and market risks.

In addition to the above, the directors have considered the group's cash flow forecast for the next 12 months. The directors are satisfied that these cash flow forecasts, taking into account reasonably possible risk sensitivities associated with them and the group's current funding and facilities and its funding strategy show that the group will continue to operate for the foreseeable future.

Accordingly, the directors have a reasonable expectation that the group and the company will continue to operate within the level of available funding for the foreseeable future and it is therefore appropriate to adopt the going concern basis in preparing the financial statements.

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance, business model and strategy.

The statement of directors‟ responsibilities and the Strategic Report was approved by a duly authorised committee of the board of directors on 26 March 2015 and signed on its behalf by
Himanshu Raja, chief financial officer.”

Peter David
Company Secretary