Annual Financial Report 2009
The full Annual Report and Accounts has been posted to shareholders. The document includes the notice of the company’s Annual General Meeting which will be held on Friday 28 May 2010 at Ironmongers’ Hall, Barbican, London EC2Y 8AA at 2.00 pm. A proxy form for the company’s Annual General Meeting accompanies annual reports posted to shareholders.
These documents have been submitted to the FSA and will shortly be available for inspection at the FSA document viewing facility which is at: Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS.
The Annual Report and Accounts and the Notice of Annual General Meeting are now available to view or download in a pdf format from the company’s website: www.g4s.com
Due to the current difficulties with air transport in the UK and northern Europe, shareholders whose addresses are outside the UK may experience delay in receiving their Annual Report and Accounts, the Notice of Annual General Meeting and the proxy form. Copies of each of these documents can be found on the company’s website.
One of the resolutions to be proposed at the Annual General Meeting involves amending the company’s articles of association with effect from the conclusion of the meeting. A copy of the proposed articles is available on the company’s website along with explanatory notes setting out the purpose and effect of the changes. You can read the proposed articles.
The proposed articles are also available for inspection at the company’s registered office and at the London office of Herbert Smith LLP at Exchange House, Primrose Street, London EC2A 2HS and, on the date of the Annual General Meeting, will be available at the AGM venue from at least 15 minutes prior to the Annual General Meeting until its conclusion.
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 which has been extracted from the Annual Report and Accounts for the year ended 31 December 2009, constitutes the material required for the purposes of compliance with the Transparency Rules and should be read together with the preliminary final results announcement which can be downloaded from the company’s website.
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. Page and note references in the text below refer to page numbers and notes in the Annual Report and Accounts.
The group’s principal risks and uncertainties:
A description of the principal risks and uncertainties that company faces is extracted from pages 38 and 39 of the 2009 Annual Report and Accounts.
“The group operates around 150 businesses spread over more than 110 countries and across a range of product areas. Most of the risks identified below are market specific and so the diversity of the group’s operations means any particular issue should have a limited impact.
The group operates a management structure that is appropriate to the scale and breadth of its activities and the internal audit department operates under a wide remit to ensure strict adherence to group authorisation procedures and control standards as outlined here.
|The security industry comprises a number of very competitive markets. In particular, manned security markets can be fragmented with relatively low economic barriers to entry and the group competes with a wide variety of operators of varying sizes. Actions taken by the group’s competitors may place pressure upon its pricing, margins and profitability.
| Group management continually monitors competitor activity to ensure that the group can react quickly to any competitor actions which would directly affect the group’s results.
All business plans and strategic planning includes competitor and SWOT analysis and the pricing strategy for contracts is managed through business unit and regional price approval levels. Significant price reductions require group capex committee approval.
The group will be undertaking a project to refine the customer measurement system during early 2010 which should further enhance competitor analysis.
|Major changes in market dynamics
|Such changes in dynamics could include new technologies, government legislation or customer consolidation and could, particularly if rapid or unpredictable, impact the group’s revenues and profitability.
Security can be a high-profile industry. There is a wide and ever-changing variety of regulations applicable to the group’s businesses across the world, with a recent development being an increase of restriction of foreign ownership in some countries. Failure, or an inability, to comply with such regulations may adversely affect the group’s revenues and profitability.
| The group performs strategic and business planning at group, division, region and business unit level to ensure that specific local regulation requirements are met. Monthly business unit trading reviews ensure that market changes are identified quickly and actions taken to maintain performance and ensure that business objectives continue to be achieved.
The group also monitors local markets and engages with local governments around the world involving the group legal department where appropriate to ensure adherence to regulatory requirements, to identify any restrictions that could adversely impact the group’s activities and take appropriate actions.
|The group is responsible for the cash held on behalf of its customers. Increases in the value of cash lost through criminal attack may increase the costs of the group’s insurance. Were there to be failures in the control and reconciliation processes in respect to customer cash these could also adversely affect the group’s profitability.
| The group has formal systems and policies in place documenting physical security procedures and security directives and adheres to a security framework to help reduce the risk of cash losses.
The group also operates captive insurance business units to mitigate against the financial risk of losses and attacks.
All transactions are subject to strict authorisation limits and regular reconciliations of cash balances are performed both of cash in ATMs and cash held on customers’ behalf.
In addition there is regular reporting of any cash losses/attacks and audits of security are performed in branches.
Recently the group has implemented a number of actions around recruiting regional cash reconciliation managers to increase the frequency and profile of cash reconciliations throughout the group.
|Onerous contractual obligations
|Should the group commit to sales contracts specifying disadvantageous pricing mechanisms, unachievable service levels or excessive liability it could impact its margins and profitability.
|Any new contracts entered into are subject to defined approval process criteria. Standard contracts with standard terms and conditions are used where possible .Non-standard contracts which expose the group to material risk (eg unlimited liability) are subject to risk assessment and depending on the level of risk exposure are referred for regional and group legal department review.
The group maintains a contract risk database and management system to monitor the ongoing risks involved. The contract management system was subject to a major upgrade during 2009.
|Defined Benefit Pension Schemes
|A prolonged period of poor asset returns and/or unexpected increases in longevity could require increases in the current levels of additional cash contributions to defined benefit pension schemes, which may constrain the group’s ability to invest in acquisitions or capital expenditure, adversely impacting its growth and profitability.
|The performance of the group’s pension schemes and deficit funding plans are reviewed regularly by both the group and the trustees of the schemes taking actuarial and investment advice as necessary.
The results of these reviews are discussed with the board and appropriate action is taken. Please refer to note 34 to the group accounts for further details of the group’s retirement benefit plans and upcoming valuations.
|Inappropriate sourcing of staff
|The group’s greatest asset is its large and committed work force. However, were the group to source inappropriate staff, whether it be as permanent employees, temporary workers or sub-contractors, the result could be detrimental to the group’s reputation and could adversely affect the group’s growth and profitability.
|The group has standard recruitment policies and procedures in place to ensure that only appropriate staff are recruited. These include formal vetting procedures carried out during application with formal sign-off that the group standards have been met before a new staff member, temporary worker or sub-contractor is able to commence work.
Steps have been taken to further tighten controls and increase independent monitoring of business unit compliance with these standards. For 2010 onwards a formal business unit compliance review by Regional human resources management has been instigated.
Particular attention is given to acquired businesses to ensure that they meet the group standards.
|Poor operational service delivery
|Should the group fail to meet the operational requirements of its customers it could impact its reputation, contract retention and growth.
|Group-wide operational procedures and standards are in place and enforced in all business units. There is also a robust supervision structure which allows management to monitor the progress and delivery of the group’s contracts and customer relationships.
|If due to adverse financial market conditions insufficient or only very costly financial funding were available, the group might not be in a position to implement its strategy or invest in acquisitions or capital expenditure, adversely impacting its growth and profitability. This includes possible bank bankruptcy, loss of headroom particularly from movement of exchange rates, unavailability of bank, bond or other sources of financing and downgrading of G4S credit rating.
|The group treasury department monitors and follows policies to mitigate against liquidity, re-financing and currency/exchange rate risks. Refer to note 33 to the group accounts for more details.
The group’s historical main source of funding has been a revolving bank facility of £1.1bn that is due for renewal in 2012. Recently the group has sought to diversify its sources of finance by issuing a number of private placement bonds both in the US and more recently in the UK. These have spread out the re-financing requirements over the next 10 years to ensure the group has access to sufficient funds to meet its business and strategic plans.”
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 56 of the 2009 Annual Report and Accounts. Responsibility is for the full 2009 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 and applicable law (UK Generally Accepted Accounting Practice).
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 Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies 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.
This statement of directors’ responsibilities was approved by a duly authorised committee of the board of directors on 15 March 2010 and signed on its behalf by Trevor Dighton, Chief Financial Officer.”