13th Mar 2007 07:00
Group 4 Securicor plc Preliminary Results Announcement January - December 2006
Group 4 Securicor, the international security solutions group, today announces its unaudited preliminary results for the twelve months to 31 December 2006.
RESULTS HIGHLIGHTS
- Strong organic turnover growth of 7.1%
- Group turnover up 8.4% * to ‚£4,353.6 million
- PBITA up 10% * to ‚£277.0 million
- Margin improved from 6.3% to 6.4%
- Cash flow generation of ‚£241.1 million, 88% of PBITA (2005: 79%)
- Adjusted earnings per share increased 9% to 12.2p
- Recommended final dividend up 13% to 2.52 pence per share (DKK 0.277)
(Recommended total dividend up 19% to 4.21 pence per share (DKK 0.463))
- Excellent growth continues across New Markets
- Strong margin progression in Cash Services
- Increasing group targets
- Overall another strong performance across the group
* at constant exchange rates
Nick Buckles, Group Chief Executive, commented:
"We have achieved a strong set of results in what I would considerto be a year of consolidation for the group. Having delivered on the synergiesand strategy that we communicated at the time of the merger in 2004, we arenow moving quickly into a new phase which we would describe as one of enhancedgrowth and development.When we created Group 4 Securicor, we explained how the combinedorganisation would deliver additional strategic benefits over and above theinitial synergy targets. I am pleased to say that some of these additionalbenefits are emerging across the organisation. As a result, we are targetingaccelerated growth, margin improvements and higher cash generation across ourbusinesses over the next three years.
I am confident that we will deliver on our increased financial targets and strategic objectives and I am excited about the future for the group as we develop our reputation as the global leader in providing security solutions."
For further enquiries, please contact:
Nick Buckles +44 (0) 1293 554400Trevor DightonDebbie McGrathRob GurnerMedia Enquiries:Kevin Smith, Citigate Dewe Rogerson +44 (0) 7973 672649Notes to Editors:Group 4 Securicor operates in over 100 countries throughout theworld, employing around 470,000 people. It is a market leader in the provisionof security solutions in many of the countries in which it operates. For moreinformation on Group 4 Securicor, visit www.g4s.com.Presentation of Results:A presentation to investors and analysts is taking place today at09.00 at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. Atelephone dial-in facility is also available on +44 (0)20 7162 0125.
Annual General Meeting: The company's annual general meeting will be held in London on 31 May.
FINANCIAL SUMMARYResultsThe results which follow have been prepared under InternationalFinancial Reporting Standards (IFRS), as adopted by the European Union.Today's results announcement includes geographic detail on our SecurityServices business, which now incorporates our Manned Security and SecuritySystems operations. In particular, we are disclosing detail on geographicregions in our various New Markets regions, namely the Middle East, LatinAmerica and the Caribbean, Africa and Asia, and we are now reportingseparately our UK & Ireland business. This reporting structure is based on howthe organisation is managed and we will continue to report in this format inthe future.Group TurnoverTurnover of Continuing Businesses 2006 2005 ‚£m ‚£m
Turnover at constant exchange rates 4,353.6 4,017.0 Exchange difference
- 28.7
Total continuing business turnover 4,353.6 4,045.7
Turnover increased by 8.4% in the year from ‚£4,017 million to ‚£4,354 million. Organic turnover growth was 7.1%.
Organic Turnover Europe North America New Markets TotalGrowth *Security Services 5.0% 5.4% 16.1% 6.9%Cash Services 6.7% 1.7% 18.5% 7.6%Total 5.4% 5.2% 16.5% 7.1%
* Calculated to exclude acquisitions and disposals, and at constant exchange rates
Group Profit
PBITA * of Continuing Businesses 2006 2005 ‚£m ‚£m
PBITA at constant exchange rates 277.0 251.8 Exchange difference
- 3.2Total continuing business PBITA 277.0 255.0PBITA margin 6.4% 6.3%
* PBITA is defined as profit before interest, taxation, amortisation of acquisition-related intangible assets and exceptional items
PBITA at constant exchange rates increased by 10% to ‚£277.0 million. The PBITA margin increased from 6.3% to 6.4%.
Cash Flow and FinancingCash Flow 2006 2005 ‚£m ‚£mOperating cash flow 241.1 198.0Operating cash flow / PBITA 88% 79%
Operating cash flow was ‚£241.1 million in the year, representing 88% of PBITA, ahead of the group's target of 80%. Net debt at the end of the year was ‚£673 million.
BUSINESS ANALYSISSecurity Services Turnover PBITA Margins ‚£m ‚£m * At constant exchangerates 2006 2005 2006 2005 2006 2005Europe * 1,792.1 1,699.7 104.5 100.5 5.8% 5.9%North America * 1,049.9 993.2 62.7 59.2 6.0% 6.0%New Markets * 638.6 525.1 48.4 38.4 7.6% 7.3%
Total Security 3,480.6 3,218.0 215.6 198.1 6.2% 6.2% Services * Exchange differences - 29.8 - 3.3 At actual exchange 3,480.6 3,247.8 215.6 201.4 rates
In security services there was steady overall organic growth of 6.9% and margins were maintained at 6.2%.
Europe Turnover PBITA Margins Organic Growth ‚£m ‚£m * At constant exchangerates 2006 2005 2006 2005 2006 2005 2006UK & Ireland* 539.7 534.8 44.1 42.5 8.2% 7.9% 0.6%Continental Europe * 1,252.4 1,164.9 60.4 58.0 4.8% 5.0% 7.0%Total Europe * 1,792.1 1,699.7 104.5 100.5 5.8% 5.9% 5.0%There was modest organic growth in the UK & Ireland during the yearbut growth in the last quarter of 2006 was over 6%. Margins improved comparedto the prior year due to good cost control, strong demand in justice servicesand an increase in higher margin project work during the fourth quarter.
The management structures of UK security services and justice services were merged at the end of the year to create a market-facing, customer-focused business. Growth in the UK will be achieved by targeting specific market segments and customers. We will also use the public sector expertise of the justice services business as a platform for moving into the provision of services to new areas of Government.
The Netherlands had another exceptional year, despite the renegotiation of our justice services contract in the prior year, achieving double digit organic growth and improved margins. The business won several important contracts, as well as some significant project work, underpinned by a recovering economic environment.
Belgium continued to perform well and the business was successful in increasing the scope and activities of several important existing contracts. Denmark achieved good growth and margins, supported by another strong performance from its market-leading systems business. Sweden was impacted by some contract losses, which were partially offset by several good contract wins during the year. A new management team is in place and we are well positioned to take advantage of our unique capability of offering customers combined security solutions. The Baltics had another strong year with double digit organic growth and high margins, driven by some large contract wins in the retail sector and our wide range of services in the region.
France delivered good organic growth, but a restructuring programmehad some impact on margins. Nevertheless, with a new management team in place,a high quality customer base and a strong product offering, there is muchpotential for margin progression in the future. We are currently preparing fora national wage award, which is expected to be implemented next month.Greece won several important contracts during the second half,partially offsetting some material contract reductions earlier in the year. Anew collective bargaining agreement has now been signed and is expected tobenefit the industry going forward. Despite a challenging socio-politicalenvironment in Israel last year, good progress is being made in finalising anew collective bargaining agreement. In addition, our electronic monitoringcontract continued to grow, whilst our systems business had an excellent year,as we maintained our position as the sole supplier of integrated securitysolutions. So far in 2007, significant combined security services and cashservices contracts have been won in Turkey and Romania.North America Turnover PBITA Margins Organic Growth ‚£m ‚£m * At constant exchangerates 2006 2005 2006 2005 2006 2005 2006
North America * 1,049.9 993.2 62.7 59.2 6.0% 6.0% 5.4%
North America delivered another year of good organic growth and margins in2006. Excluding turnover related to high levels of short term response workafter Hurricane Katrina during 2005 and early 2006, underlying organic growthwas around 8% for the year as a whole, and particularly strong in the fourthquarter of 2006 at 10%, measured on the same basis.In the United States, whilst the market continued to be verycompetitive, we won some large contracts during the second half in thecommercial sector together with additional business from existing customers.We also achieved increased manning levels at a number of nuclear power plants.In the government sector, we won a five year contract to provide security andtransit services at the Mexican border, as mentioned at the half year. Marginswere maintained compared to the previous year despite stronger pressure onlabour resources resulting in higher levels of un-billed overtime for much of2006. Good management of risk, claims, incident losses and healthcareprogrammes mitigated these overtime cost increases.Canada had a good year, supported by additional project work wonduring the year and some large national contract wins in the fourth quarter.New Markets Turnover PBITA Margins Organic Growth ‚£m ‚£m * At constant exchangerates 2006 2005 2006 2005 2006 2005 2006Middle East * 125.5 88.4 10.9 7.8 8.7% 8.8% 21.4%Latin America & 124.5 97.2 6.5 3.0 5.2% 3.1% 19.7%Caribbean *Africa * 152.6 135.8 12.5 12.6 8.2% 9.3% 8.8%Asia * 236.0 203.6 18.5 15.0 7.8% 7.4% 17.1%Total New Markets * 638.6 525.1 48.4 38.4 7.6% 7.3% 16.1%
In New Markets, organic growth continued to be strong at 16.1%, with margins increasing to 7.6%.
The Middle East achieved another year of double digit organic growth, with strong margins, as our market-leading position in the region continued to have a positive impact. On-going investment in countries like the UAE and Saudi Arabia continues to benefit the group, as a growing number of companies rely on us as a key supplier of a range of security and cash services. Our contract in Iraq continued to perform in line with our expectations and we anticipate another good year in 2007.
Latin America saw double digit organic growth with strong marginimprovements. There was excellent organic growth in Argentina, driven byseveral important contract wins, and solid margin progression, supported by anon-going focus on contract efficiency. Guatemala generated double digitorganic growth and margins, partly as a result of an acquisition which wascompleted and integrated during the year. Colombia had a good year, due to astrong performance from its toll service business and as a result of increasedcorporate investment in the country having a beneficial impact on the market.The Caribbean region performed strongly as it continued to offer its servicesacross an expanding geographic base.Africa produced good organic growth overall. South Africa, ourlargest business in the region, had a challenging year due to a restructuringof the business, completed at the start of the year, and the indirect impactof industry-wide strike action, which was settled during the first half. Along term union agreement is now in place and the business is extremely wellplaced going forward. Kenya, Botswana and Namibia produced excellent organicgrowth with solid margin improvements, due to the businesses' unique offeringof combined security solutions. Nigeria also had a strong year, driven by thethriving local energy sector.Asia achieved exceptional organic growth and good marginprogression. Our market-leading position and prominent reputation, as well asour wide range of service offerings, continued to have a beneficial impact inIndia, where strong, double-digit growth and good margin improvements wereachieved. In Hong Kong we continued to win a number of small to medium-sizedcontracts, ensuring the business is on a firm platform going forward. Macauperformed extremely well as we continued to see the benefits of the country'sburgeoning tourist industry.Cash Services Turnover PBITA Margins ‚£m ‚£m * At constant exchangerates 2006 2005 2006 2005 2006 2005Europe * 661.7 619.4 68.7 59.9 10.4% 9.7%North America * 85.3 80.5 1.8 3.0 2.1% 3.7%New Markets * 126.0 99.1 17.4 15.4 13.8% 15.5%Total Cash Services * 873.0 799.0 87.9 78.3 10.1% 9.8%Exchange differences - (2.1) - 0.0At actual exchange 873.0 797.9 87.9 78.3rates
In cash services, there was strong organic growth of 7.6%, compared to 6.2% in the prior year, whilst margins increased to 10.1% from 9.8%.
Overall organic growth in Europe increased to 6.7%, from 5.8% inthe prior year. The UK saw continued good growth and further margindevelopment, supported by several significant contract wins, with ATM and cashprocessing performing particularly well. Whilst attack levels increased on theprior year, good progress is being made in reducing attacks in certain regionsand we continue to develop new technologies to reduce attack losses. We havecommenced the pilot of our retail cash management solution, one of severalsignificant growth opportunities going forward.Good margins were maintained in the Netherlands and the businessachieved some important contract renewals, helping to support another strongperformance from the business. In Sweden, we saw a decline in attacks due toan increased investment in security. Our business delivered further marginprogression and we won a number of contracts during the year, the mostsignificant being a major Swedish financial institution which commenced in2007. There were strong performances elsewhere in Europe during the year, inparticular Belgium, the Baltics and Hungary saw robust organic growth withgood margin improvements.
At the end of the year, we reached agreement to divest our cash services business in Germany.
In North America, there was moderate organic growth in Canada, compared to negative growth in the prior year. The market continued to be challenging and profitability was impacted by increased operating costs following a major robbery in 2005. Nevertheless, we were awarded some important contract renewals and are optimistic about the medium term outlook.
New Markets continued to deliver strong, double-digit margins and organic growth. Asia saw good organic growth and margin progression. Our businesses continued to be successful in providing customers with enhanced product offerings as the market dynamics in various countries, including Malaysia and Indonesia, become further advanced. In Hong Kong, whilst the market is less developed, we continue to benefit from being the only major provider of a full range of cash services.
The Middle East delivered another outstanding performance. Theregion experienced double digit organic growth and margins as a result of ourmarket-leading position and the on-going favourable economic conditions in theregion. In particular, the UAE, Saudi Arabia and Qatar delivered exceptionalresults.Africa achieved another excellent year of organic growth, buoyed bya particularly strong performance in Kenya. Morocco had a challenging year,partly as a result of new legislation surrounding the cash management marketresulting in an asset write-down, which impacted the margin in Africa. Lastmonth, we announced the acquisition of a majority stake in Fidelity CashManagement Services (PTY) Ltd, This acquisition provides the group with a cashservices presence in South Africa for the first time, as well as growing ourexposure to other markets, including Botswana, Namibia and Lesotho, therebyincreasing the potential for cross-selling opportunities in these markets.
STRATEGY
Strategy Development
We have made good progress in 2006 towards our vision of becomingthe global leader in providing security solutions and we expect this tocontinue into the future. Our approach is focused on the markets in which weoperate rather than the services we provide and we believe that this strategyprovides us with sustainable competitive advantage.
Our position in New Markets is unrivalled in the industry and will become increasingly significant to the group over time.
Group Targets
When the merger was announced in 2004, we set ourselves an overall organic growth target of 6%+ per annum. In 2006 we have exceeded that target and delivered organic growth of 7%, a level of performance which we will target into the future.
At the same time, we were targeting a medium term PBITA margin of 7%. We still believe this is achievable within two to three years and will continue to target margin improvements at this level.
We have had a very strong year on cash generation having implemented good controls across the organisation since the merger. We are confident that this good progress will continue and are increasing our cashflow target to 85% of PBITA in place of the current 80% target.
Last year, we announced our intention to increase dividends so asto reduce dividend cover to around 2.5 times as a result of our confidence inthe performance of the group going forward. We are targeting dividend cover
atthis level within two years.AcquisitionsThe group's acquisition strategy remains focused on bolt-ons acrossall service areas which will add scale or additional expertise to ourbusinesses or help to consolidate fragmented markets. Our acquisition policyfollows a number of strict criteria, the key measure being that acquisitionsreach a post-tax Return On Invested Capital of 12% within 3 years. Thesecriteria ensure that we continue to make sound acquisitions at fair prices.In 2006 we made a number of bolt-on acquisitions in many differentcountries, with a particular focus on New Markets, including Chile, Hong Kong,Guatemala, Mozambique, Democratic Republic of Congo, Indonesia, Saudi Arabiaand United Arab Emirates.
The group has already made several acquisitions in 2007 in a variety of countries including the UK, the Netherlands, South Africa and the Czech Republic.
Looking ahead, we will continue to aim to fill appropriate geographic gaps in the security services businesses, increase our New Markets presence and make targeted acquisitions in cash services.
OTHER FINANCIAL ISSUES
Disposals and discontinued operations
On 22 December 2006, in accordance with the strategy announced atthe half year, the group agreed the terms of a disposal of its cash businessin Germany, which has now completed. On 28 December 2006 we disposed of a UStransportation business, being the remaining business of Cognisa. The resultsof these businesses for the year, together with the net loss on their disposaland the related tax charge, comprised the majority of the ‚£33.4m reported lossfrom discontinued operations.
The loss from discontinued operations in 2005 of ‚£13.1m also included the businesses disposed in that year, including the manned security business of Falck Nederland and the security operations of Cognisa.
Financing and interest
The lending banks exercised their options to extend the term of the‚£1billion multi-currency revolving credit facility to 28 June 2011. One moreextension option process is exercisable in the period 90 days prior to 28 June2007. If the options are exercised the facility will mature on 28 June 2012.The margin continues at 0.225% over LIBOR.An ‚£87m multi-currency revolving credit facility was signed withING Bank NV London Branch on 1 February 2007. The facility term is for 5 yearsand there is an option exercisable by the bank under which the facility can beextended to 28 June 2012. The extension option is exercisable in the period 90days prior to 28 June 2007.The margin on this facility is 0.225% over LIBOR.
On 1 March 2007 the group completed a US$550m Private Placement of Notes, which mature at various dates between 2014 and 2022 and bear interest at rates between 5.77% and 6.06%.
As of 31 December 2006, net debt was ‚£673m representing a gearing of 69%. The group has sufficient capacity to finance growth.
Net interest payable on net debt was ‚£42.0m. This is an increase of 20% over the 2005 cost of ‚£35.1m due principally to the rising costs of borrowing and the increase in the group's average gross debt.
The group's average cost of gross borrowings in 2006 was 4.7% compared to 4.2% in 2005. The cost, based on the yield curves at 31 December 2006, was 5.2%.
Also included within financing is a net income of ‚£1.0m (2005: cost of ‚£4.9m) in respect of movements in the group's pension obligations.
Taxation
The effective tax rate for the year was 28.6% compared to 31.1% in 2005. The group believes that this rate is sustainable going forward.
Pensions
The group's funding shortfall on the valuation basis specified in IAS19 Employee Benefits was ‚£226m before tax or ‚£158m after tax (2005: ‚£217m and ‚£152m respectively).
The value of the assets in the funds increased by ‚£119m during 2006continuing the trend of 2005. However, this was counteracted by the impact ofincreasing inflation. The group believes that, over the very long term inwhich pension liabilities become payable, investment returns should eliminatethe deficit in the schemes in respect of past service liabilities. However, inrecognition of the regulatory obligation upon pension fund trustees to addresscurrently reported deficits, additional cash contributions into the two mainUK schemes of around ‚£24m are being made in 2007. This level of contributionwill be reviewed annually and reassessed formally at the next actuarialvaluation dates, which are 5 April 2009 in respect of the Securicor scheme and31 March 2007 in respect of the Group 4 scheme.
Dividend
The directors recommend a final dividend of 2.52p per share (DKK0.277). This represents an increase of 13% on the final dividend for the yearto 31 December 2005. The interim dividend was 1.69p per share (DKK 0.186) andthe total dividend, if approved, will be 4.21p per share (DKK 0.463),representing an increase of 19% over the total dividend for 2005.
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 for 2006 is 2.9 on adjusted profit. The group reaffirms its intention to increase dividends so as to reduce dividend cover to around 2.5 times.
REVIEW AND OUTLOOK
We have delivered on the synergies and strategic objectives that we set out at the time of the merger and have built the platform on which we can further develop as the global leader in our field.
As we become more market facing and less product led, we arefurther developing our customer relationships across a broad range of sectorsand geographic markets and gaining a clearer understanding of customers' needsand values.
We will build on this strategy in 2007 and expect to make progress towards our increased targets, as we focus our management on driving through accelerated growth and margin improvements.
13 March 2007
Group 4 Securicor plcUnaudited preliminary results announcementFor the year ended 31 December 2006Consolidated income statementFor the year ended 31 December 2006 Notes 2006 2005 ‚£m ‚£m Continuing operations Revenue 2 4,353.6 4,045.7
Profit from operations before amortisation of acquisition-related intangible assets, exceptional items and share of profit from associates
274.2 249.7Share of profit from associates 2.8 5.3Profit from operations before amortisationof acquisition-related intangible assets andexceptional items (PBITA)
2 277.0 255.0
Amortisation of acquisition-related intangible assets (36.0) (33.8)Exceptional items: Restructuring costsconsequential upon acquisitions
- (18.2)
Profit from operations before interestand taxation (PBIT) 2, 3 241.0 203.0 Finance income 6 81.2 72.6Finance costs 7 (122.2) (112.2)
Profit from operations before taxation
200.0 163.4
Taxation:
- Before amortisation of acquisition-relatedintangible assets and exceptional items (67.5) (67.3)- On amortisation of acquisition-relatedintangible assets 10.8 10.0- On exceptional items - (2.3) 8 (56.7) (59.6)Profit from continuing operationsafter taxation
143.3 103.8
Loss from discontinued operations
4 (33.4) (13.1) Profit for the year 109.9 90.7 Attributable to:Equity holders of the parent 96.5 80.8Minority interests 13.4 9.9Profit for the year 109.9 90.7 Earnings per share attributable toordinary equity shareholders of the parent
10
For profit from continuing operations:Basic 10.2p 7.4pDiluted 10.2p 7.4p For profit from continuing anddiscontinued operations:Basic 7.6p 6.4pDiluted 7.6p 6.4p Dividends per share declared andproposed in respect of the year
9
2006 2005 Interim (declared and recognised 1.69p 1.30p 21.4 16.4in reserves)Final (proposed but not recognised) 2.52p 2.24p 32.3 28.3Total dividends per share declared 4.21p 3.54p
53.7 44.7and proposedConsolidated balance sheetAs at 31 December 2006 Notes 2006 2005 ‚£m ‚£m ASSETSNon-current assetsGoodwill 1,170.9 1,176.3Other acquisition-related intangible assets 220.6 241.4Other intangible assets 22.2 27.3Property, plant and equipment 355.0 354.6Investment in associates 7.3 3.9Trade and other receivables 49.9 50.3Deferred tax assets 115.7 112.9 1,941.6 1,966.7 Current assetsInventories 49.9 35.3Trading investments 73.7 61.4Trade and other receivables 798.9 829.8Cash and cash equivalents 307.5 263.8 1,230.0 1,190.3 Total assets 3,171.6 3,157.0 LIABILITIESCurrent liabilitiesBank overdrafts (97.5) (58.7)Bank loans (70.1) (87.7)Obligations under finance leases (13.6) (12.1)Trade and other payables (707.6) (758.4)Current tax liabilities (26.3) (27.6)Retirement benefit obligations (42.2) (30.0)Provisions (40.3) (44.5) (997.6) (1,019.0) Non-current liabilitiesBank loans (830.3) (790.1)Obligations under finance leases (42.5)
(33.9)
Trade and other payables (1.0)
(1.0)
Retirement benefit obligations (208.3) (211.0)Provisions (38.7) (47.3)Deferred tax liabilities (81.7) (84.8) (1,202.5) (1,168.1) Total liabilities (2,200.1) (2,187.1) Net assets 971.5 969.9 EQUITYShare capital 320.0 317.2Share premium and reserves 615.2 625.0Equity attributable to equity holders of the parent 11 935.2 942.2Minority interests 36.3 27.7Total equity 971.5 969.9Consolidated cash flow statementFor the year ended 31 December 2006 2006 2005 ‚£m ‚£m
Profit from continuing operations before taxation 200.0 163.4Trading loss from discontinued operations before taxation
(18.1) (7.6) Adjustments for:Finance income (81.2) (72.6)Finance costs 122.2 112.2
Finance costs attributable to discontinued operations 0.9 0.9Depreciation of property, plant and equipment 82.8 75.4Amortisation of acquisition-related intangible assets 36.0 33.8Amortisation of other intangible assets 7.4 6.8Impairment of other intangible assets 2.5 -Share of profit from associates (2.8) (5.3)(Profit)/loss on disposal of property, plant and equipment and intangibleassets other thanacquisition-related (1.6) 2.8Equity-settled transactions:-Performance share plan and deferred share awards 3.6 1.2-Share options 1.4 1.5Operating cash flow before movements in working capital
353.1 312.5 Increase in inventories (6.9) (6.3)Increase in receivables (17.7) (67.9)
(Decrease)/increase in payables
(13.5) 0.1Decrease in provisions (47.6) (10.9)Cash generated by operations 267.4 227.5 Tax paid (70.3) (53.0)
Net cash flow from operating activities
197.1 174.5 Investing activitiesInterest received 11.5 9.8Cash flow from associates
2.7 12.3 Purchases of property, plant and equipment and intangible assets other than acquisition-related
(93.2) (108.0) Proceeds on disposal of property, plant and equipment and intangible assets other than acquisition-related
10.7 18.2Acquisition of subsidiaries and separately acquired customer-relatedintangible assets (96.7) (69.7)Net cash balances acquired 3.5 3.0Disposal of subsidiaries 9.9 42.1
(Purchase)/disposal of trading investments (21.8) 4.8Own shares purchased (3.1) (6.1)Acquisition of minority shareholders of the former Group 4 Falck A/S - (9.5)Net cash used in investing activities
(176.5) (103.1) Financing activitiesShare issues 9.1 4.9
Dividends paid to minority interests (3.0) (5.1)Dividends paid to equity shareholders of the parent
(49.8) (39.9)Net increase in borrowings 95.1 47.3Interest paid (59.3) (47.9)
Net cash inflow from hedging financial instruments 11.8 -Repayment of obligations under finance leases (8.4) (7.6)Net cash flow from financing activities
(4.5) (48.3)
Net increase in cash, cash equivalents and bank overdrafts
16.1 23.1
Cash, cash equivalents and bank overdrafts at the beginning of the year
205.1 177.7Effect of foreign exchange rate fluctuations on cash held (11.2) 4.3Cash, cash equivalents and bank overdrafts at the end of the year 210.0 205.1Consolidated statement of recognised income and expense
For the year ended 31 December 2006
2006 2005 ‚£m ‚£m Exchange differences on translation of foreign operations (42.6) 36.5Actuarial losses on defined retirement benefit schemes (33.4) (22.6)Change in fair value of cash flow hedging financial instruments 1.1 0.4Change in fair value of net investment hedging financial instruments 11.6 (6.2)Tax on items taken directly to equity (1.4) 12.3Net (expense)/income recognised directly in equity (64.7) 20.4Profit for the year 109.9 90.7Total recognised income 45.2 111.1 Attributable to:Equity holders of the parent 31.8 101.2Minority interests 13.4 9.9Total recognised income 45.2 111.1
Notes to the preliminary results announcement
1) Basis of preparation and accounting policies
The preliminary results announcement for the year ended 31 December2006 has been prepared in accordance with International Financial ReportingStandards as adopted by the European Union (EU) at 31 December 2006. Detailsof the accounting policies applied are those set out in the 2005 Annual Reportand Accounts. The financial statements will be delivered to the Registrar ofCompanies in due course.The primary statements and selected notes in this preliminaryresults announcement do not constitute the company's financial statementswithin the meaning of Section 240 of the Companies Act 1985 for the yearsending 31 December 2006 or 2005. The notes included in this announcement arein some cases summaries of those included in the statutory accounts. Statutoryaccounts for the year ended 31 December 2005 have been filed with theRegistrar of Companies. The auditors' report on those accounts was unqualifiedand did not contain any statement under Section 237 of the Companies Act 1985.The comparative income statement for the year ended 31 December2005 has been re-presented for operations discontinued during the currentyear. Turnover from continuing operations has been reduced by ‚£84.2m andprofit from operations before taxation (PBT) has been increased by ‚£5.9m inrespect of these operations. In addition, the comparative balance sheet as at31 December 2005 has been restated to reflect the completion during 2006 ofthe initial accounting in respect of acquisitions made during 2005.Adjustments made to the provisional calculation of the fair values of assetsand liabilities acquired amount to ‚£3.6m, with an equivalent increase in thereported value of goodwill.2) Segmental analysis
The group operates in two core product areas: security services (combining manned security, justice services and security systems) and cash services. The group operates on a worldwide basis and derives a substantial proportion of its revenue and profit from operations before interest and taxation (PBIT) from each of the following geographic regions: Europe (comprising the United Kingdom and Ireland, and Continental Europe), North America, and New Markets (comprising the Middle East and Gulf States, Latin America and the Caribbean, Africa and Asia Pacific).
The current management structure of the group is a combination of product area and geography, within which the larger businesses generally report by product area. The group's primary segmentation is therefore by business segment and its secondary segmentation is by geography.
In 2005, the group reported three product segments: mannedsecurity, security systems and cash services. During 2006 the group integratedits manned security and security systems businesses within Europe into asecurity services country reporting-line structure, similar to the structurethat was already in place within New Markets. Therefore, the group is managedby and thus reports two product segments: security services and cash services.For this year only, the security services segment is further analysed betweenmanned security and security systems but this will not be the case goingforward for the fully integrated security services product segment.Segment information in respect of continuing operations is presented below:
Segment revenueRevenue by business segment 2006 2005 ‚£m ‚£m Security ServicesUK & Ireland 539.7 534.9Continental Europe 1,252.4 1,168.0Europe 1,792.1 1,702.9North America 1,049.9 1,005.6Middle East and Gulf States 125.5 89.8
Latin America and the Caribbean 124.5 100.9
Africa 152.6 142.1Asia Pacific 236.0 206.5New Markets 638.6 539.3Total Security Services 3,480.6 3,247.8 Manned Security 3,064.5 2,858.2Security Systems 416.1 389.6Total Security Services 3,480.6 3,247.8 Cash ServicesEurope 661.7 620.7North America 85.3 76.9New Markets 126.0 100.3Total Cash Services 873.0 797.9Total Revenue 4,353.6 4,045.7
2) Segmental analysis (continued)
Revenue by geographic market 2006 2005 ‚£m ‚£m Europe 2,453.8 2,323.6North America 1,135.2 1,082.5New Markets 764.6 639.6Total revenue 4,353.6 4,045.7PBITA by business segment 2006 2005 ‚£m ‚£m Security ServicesUK & Ireland 44.1 42.5Continental Europe 60.4 58.3Europe 104.5 100.8North America 62.7 61.0Middle East and Gulf States 10.9 7.8
Latin America and the Caribbean 6.5
3.3Africa 12.5 13.3Asia Pacific 18.5 15.2New Markets 48.4 39.6Total Security Services 215.6 201.4 Manned Security 180.9 169.3Security Systems 34.7 32.1Total Security Services 215.6 201.4 Cash ServicesEurope 68.7 60.0North America 1.8 2.8New Markets 17.4 15.5Total Cash Services 87.9 78.3Total PBITA before head office costs 303.5 279.7Head office costs (26.5) (24.7)Total PBITA 277.0 255.0 PBITA by geographic marketEurope 173.2 160.8North America 64.5 63.8New Markets 65.8 55.1Total PBITA before head office costs 303.5 279.7Head office costs (26.5) (24.7)Total PBITA 277.0 255.0Result by business segment 2006 2005 ‚£m ‚£m Total PBITA 277.0 255.0
Amortisation of acquisition-related intangible assets
(36.0) (33.8)Exceptional items - (18.2)Total PBIT 241.0 203.0 Security Services 199.5 173.0Cash Services 68.0 56.1Head office costs (26.5) (26.1)Total PBIT 241.0 203.0
3) Profit from operations before interest and taxation
The income statement can be analysed as follows:
2006 2005 ‚£m ‚£m Continuing operations Revenue 4,353.6 4,045.7Cost of sales (3,423.1) (3,160.1 )Gross profit 930.5 885.6Administration expenses (692.2) (687.9)Share of profit from associates 2.8 5.3
Profit from operations before interest and taxation 241.0 203.0
Included within administration expenses are charges for the amortisation of acquisition-related intangible assets and exceptional items.
4) Discontinued operations
Discontinued operations represent operations disposed of during 2005 and 2006.
On 22 December 2006 the group agreed terms for the divestment of G4S Geld und Wertdienste GmbH, the German cash services business. The business and assets of Cognisa Transportation, Inc were disposed of on 28 December 2006.
In 2005, the group disposed of the security operations of CognisaSecurity in the US, which were sold on 31 August 2005. Further disposalsincluded Group 4 Falck Cash Services UK, sold on 7 March 2005 and the mannedsecurity business of Falck Security Nederland and its subsidiaries (with theexception of aviation security activities) sold on 2 November 2005. Thedisposal of these businesses was required by the European Commission as acondition for their approval of the combination between the securitybusinesses of the former Group 4 Falck A/S and Securicor plc on 19 July 2004.During the disposal process the group did not have control over theseoperations and in consequence their results were not consolidated from 20 July2004.5) Acquisitions
The group undertook a number of acquisitions in the year, none of which were individually material. The total fair value of net assets acquired amounted to ‚£30.4m which included the recognition of ‚£22.2m of acquisition-related intangible assets, generating goodwill of ‚£68.0m, satisfied by a total consideration of ‚£98.4m.
Principal acquisitions in subsidiary undertakings include thepurchase of controlling interests in the Chilean company, Servicios Generales,Limitada, a manned security services provider, and in Al Majal SecurityServices, a security services and cash services business in Saudi Arabia. Inaddition, the group increased its interests in the United Arab Emirates.6) Finance income 2006 2005 ‚£m ‚£m 11.8Interest receivable 14.0Expected return on defined retirement benefit scheme assets 67.2 60.8Total finance income 81.2 72.67) Finance costs 2006 2005 ‚£m ‚£m Interest on bank overdrafts and loans 53.4 43.7Interest on other loans 0.2 0.5Interest on obligations under finance leases 2.4 1.8Total group borrowing costs 56.0 46.0
Finance costs on defined retirement benefit obligations 66.2 65.7 Decrease in fair value of trading investments
- 0.5Total finance costs 122.2 112.28) Taxation 2006 2005 ‚£m ‚£m
Total taxation charge before taxation on amortisation of acquisition-related intangible assets and exceptional items
(67.5) (67.3)Deferred taxation credit on amortisation of acquisition-related intangible 10.0assets
10.8
Taxation charge on exceptional items - (2.3)Total taxation charge
(56.7) (59.6)
The total taxation charge includes amounts attributable to the UK of ‚£16.8m (2005: ‚£11.2m)9) Dividends Pence DKK 2006 2005 per share per share ‚£m ‚£m
Amounts recognised as distributions to equity holders of the parent in theyearFinal dividend for the year ended 31 December 2004 1.85 0.1981 - 23.5Interim dividend for the six months ended 30 June 2005 1.30 0.1430 - 16.4Final dividend for the year ended 31 December 2005 2.24 0.2435 28.3 -Interim dividend for the six months ended 30 June 2006
1.69 0.1863 21.4 -
49.7 39.9 Proposed final dividend for the year ended 31 December 2006
2.52 0.2766 32.3
The proposed final dividend is subject to approval by shareholdersat the Annual General Meeting. If so approved, it will be paid on 8 June 2007to shareholders who are on the register on 11 May 2007. The exchange rate usedto translate it into Danish Kroner is that at 12 March 2007.10) Earnings per share attributable to ordinary shareholders of the parent
2006 2005
‚£m ‚£mFrom continuing and discontinued operations
Earnings
Profit for the year attributable to equity holders of the parent 96.5 80.8Effect of dilutive potential ordinary shares (net of tax) 0.3 -Profit for the purposes of diluted earnings per share
96.8 80.8
Number of shares (m)Weighted average number of ordinary shares 1,268.3 1,265.0Effect of dilutive potential ordinary shares
5.4 6.0 Weighted average number of ordinary shares for the purposes of diluted earnings per share
1,273.7 1,271.0
Earnings per share from continuing and discontinued operations (pence)Basic 7.6p 6.4pDiluted 7.6p 6.4p From continuing operations Earnings
Profit for the year attributable to equity holders of the parent 96.5 80.8Adjustment to exclude loss for the year from discontinued operations (net oftax) 33.4 13.1Profit from continuing operations 129.9 93.9Effect of dilutive potential ordinary shares (net of tax)
0.3 - Profit from continuing operations for the purpose of diluted earnings per share
130.2 93.9
Earnings per share from continuing operations (pence)Basic 10.2p 7.4pDiluted 10.2p 7.4p From discontinued operations Loss per share from discontinued operations (pence)Basic (2.6)p (1.0)pDiluted (2.6)p (1.0)p From adjusted earnings Earnings
Profit from continuing operations 129.9 93.9Adjustment to exclude net retirement benefit finance costs and fair valueadjustments to financialinstruments (net of tax)
(0.7) 3.8 Adjustment to exclude amortisation of acquisition-related intangible assets (net of tax)
25.2 23.8Adjustment to exclude exceptional items (net of tax) - 20.5Adjusted profit for the year attributable to equity holders of the parent
154.4 142.0
Adjusted earnings per share (pence)
12.2p 11.2p
In the opinion of the directors the earnings per share figure ofmost use to shareholders is that which is adjusted. This figure better allowsthe assessment of operational performance, the analysis of trends over time,the comparison of different businesses and the projection of future earnings.11) Summary reconciliation of equity attributable to equity holders of theparent Share Share Capital Reserves Total Capital Reserves Total 2006 2006 2006 2005 2005 2005 ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m At beginning of year 317.2 625.0 942.2 316.1 563.3 879.4Total recognised income attributableto equity shareholders of the parent - 31.8 31.8 - 101.2 101.2Shares issued 2.8 6.3 9.1 1.1 3.8 4.9Dividends declared - (49.8) (49.8) - (39.9) (39.9)Own shares purchased - (3.1) (3.1) - (6.1) (6.1)Equity settled transactions:-Performance share plan - 2.3 2.3 - 1.2 1.2-Deferred share awards - 1.3 1.3 - - --Share options - 1.4 1.4 - 1.5 1.5At end of year 320.0 615.2 935.2 317.2 625.0 942.212) Analysis of net debtA reconciliation of net debt to amounts in the balance sheet is presentedbelow: 2006 2005 ‚£m ‚£m Cash and cash equivalents 307.5 263.8Trading investments 73.7 61.4Current liabilitiesBank overdrafts (97.5) (58.7)Bank loans (70.1) (87.7)Obligations under finance leases (13.6) (12.1)Non-current liabilitiesBank loans (830.3) (790.1)Obligations under finance leases (42.5) (33.9)Total net debt (672.8) (657.3)
An analysis of movements in net debt in the year is presented below:
2006 2005 ‚£m ‚£m
Increase in cash, cash equivalents and bank overdrafts per consolidated cash flow statement
16.1 23.1Purchase/(disposal) of trading investments 21.8 (4.8)Increase in debt and lease financing (86.7) (39.7)Change in net debt resulting from cash flows
(48.8) (21.4)
Borrowings acquired with subsidiaries (2.5) (1.3)Net additions to finance leases (19.6) (20.7)Movement in net debt in the year
(70.9) (43.4)
Translation adjustments 55.4 (27.5)Net debt at the beginning of the year (657.3) (586.4)Net debt at the end of the year (672.8) (657.3)Non GAAP measure - cash flowThe directors consider it is of assistance to shareholders topresent an analysis of the group's operating cash flow in accordance with theway in which the group is managed, together with a reconciliation of that cashflow to the net cash flow from operating activities as presented in theconsolidated cash flow statement.Operating cash flowFor the year ended 31 December 2006 2006 2005 ‚£m ‚£m Group PBITA 274.2 249.7
Depreciation and amortisation of assets other than acquisition-related 81.4intangible assets
91.1
Increase in working capital and provisions before exceptional items
(41.7) (43.3)Net cash flow from capital expenditure (82.5) (89.8)Operating cash flow 241.1 198.0Reconciliation of operating cash flows
2006 2005
‚£m ‚£m
Net cash flow from operating activities (per consolidated cash flow statement) 197.1 174.5 Net cash flow from capital expenditure
(82.5) (89.8)Cash outflow on exceptional items and discontinued operations 32.0 39.7Additional pension contributions
24.2 15.0Other - 5.6Tax paid 70.3 53.0Operating cash flow 241.1 198.0
GROUP 4 SECURICOR PLCRelated Shares:
GFS.L