11th Mar 2008 07:00
G4S plc
Preliminary Results Announcement
January - December 2007
G4S plc, the international security solutions group, today announces its preliminary results for the twelve months to 31 December 2007.
RESULTS HIGHLIGHTS
- Very strong organic turnover growth* of 9.1% (2006: 7.1%)
- Group turnover* up 14.5% to ‚£4,490.4 million (2006: ‚£3,923.2m)
- PBITA* up 16.8% to ‚£312.1 million (2006: ‚£267.1 m)
- Margin* improved to 7.0% (2006: 6.8%)
- Cash flow generation of ‚£276.4 million, 89% of PBITA (2006: 86%)
- Adjusted earnings per share increased by 10.7% to 13.4p (2006: 12.1p)
- Recommended final dividend up 13.1% to 2.85 pence per share DKK 0.279 (2006: 2.52p/DKK 0.277)
(Recommended total dividend up 17.8% to 4.96 pence per share DKK 0.511 (2006: 4.21p/DKK 0.463)
- Process commenced for divestment of security services businesses in France and Germany
- Announced acquisition of Global Solutions Limited in December 2007
- Launched new strategy to drive accelerated growth and development
- Excellent all-round performance, particularly in developing markets
* at constant (2007) exchange rates
Nick Buckles, Chief Executive Officer, commented:
"We are extremely pleased with the performance of the business in 2007 and feel confident about the further development of the group this year.
In developed markets we have achieved a solid result with organic growth of around 7% and margins in line with the previous year. The increased organic growth of 17% and improved margins in developing markets has driven an overall margin improvement of 0.2% across the group.
We've introduced the investment community to the next phase of our strategywhich we believe will drive accelerated growth and development for the groupand we have already announced a number of acquisitions which help us drive thestrategy forward.
Overall, the outlook for the business is good and we are not expecting the recent economic uncertainties to impact our ability to continue to deliver strong results in the future."
For further enquiries, please contact:
Nick Buckles - Chief Executive Officer +44 (0) 1293 554400
Trevor Dighton - Chief Financial Officer
Debbie McGrath - Group Communications Director
Helen Parris - Director of Investor Relations
Media enquiries:
Kevin Smith - Citigate Dewe Rogerson +44 (0) 7973 672649
Notes to Editors:
G4S plc is the world's leading international security solutions group, whichspecialises in assessing current and future risks and developing securesolutions to minimise their impact across a wide range of geographic marketsand business sectors.G4S is a major provider of risk management and protection to governments andmajor corporate customers around the world and is an expert in all aspects oflocal and international secure logistics.
G4S is the largest employer quoted on the London Stock Exchange with a secondary stock exchange listing in Copenhagen. G4S has operations in over 110 countries and over 530,000 employees. For more information on G4S, visit www.g4s.com.
Presentation of Results:
A presentation to investors and analysts is taking place today at 0900hrs atthe London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. Atelephone dial-in facility is available on +44 (0) 20 7162 0025. A replay isavailable for seven days after the announcement by dialling +44 (0) 20 70314064 and using access code 786864.
Annual General Meeting
The company's annual general meeting will be held in London on 29 May 2008.
FINANCIAL SUMMARYResults
The results which follow have been prepared under International Financial Reporting Standards, as adopted by the European Union (adopted IFRSs).
Group Turnover
Turnover of Continuing Businesses 2007 2006 ‚£m ‚£m
Turnover at constant exchange rates 4,490.4 3,923.2 Exchange difference
- 113.6
Total continuing business turnover 4,490.4 4,036.8
Turnover, at constant exchange rates, increased by 14.5% to ‚£4,490.4 million. Organic turnover growth was 9.1%.
Organic Turnover Europe North Developed New Markets TotalGrowth * America MarketsSecurity Services 6.3% 7.3% 6.7% 17.0% 8.7%Cash Services 11.6% (6.0%) 9.5% 17.0% 10.6%Total 7.8% 6.3% 7.3% 17.0% 9.1%
* Calculated to exclude acquisitions and disposals, and at constant exchange rates
Group ProfitPBITA * of Continuing Businesses 2007 2006 ‚£m ‚£m
PBITA at constant exchange rates 312.1 267.1 Exchange difference
- 7.3Total continuing business PBITA 312.1 274.4PBITA margin 7.0% 6.8%
* PBITA is defined as profit before interest, taxation and amortisation of acquisition-related intangible assets
PBITA at constant exchange rates increased by 16.8% to ‚£312.1 million. ThePBITA margin was 7.0%.Cash Flow and FinancingCash Flow 2007 2006 ‚£m ‚£mOperating cash flow 276.4 234.4Operating cash flow / PBITA 89% 86%Operating cash flow, as analysed on page 21, was ‚£276.4 million in the period,representing 89% of PBITA. Net cash invested in acquistions was ‚£132.1million. Net debt, as analysed on page 20, at the end of the period was ‚£804.9million (2006: ‚£672.8m).
Adjusted Earnings per Share
Adjusted Earnings per share 2007 2006 at 2006 constant exchange rates ‚£m ‚£m ‚£mPBITA from continuing 312.1 267.1 274.4operations
Interest (before pensions) (58.7) (37.0) (39.9) Tax
(69.7) (65.8) (67.1)Minorities (13.4) (13.4) (13.4)Adjusted profit attributable to 170.3 150.9 154.0
shareholders
Average number of shares (m) 1,275.2 1,268.3 1,268.3 Adjusted EPS (p)
13.4p 11.9p 12.1p
Adjusted earnings per share, reconciled to basic earning per share on page 19, increased by 10.7%, or by 12.6% at constant exchange rates.
BUSINESS ANALYSISSecurity Services Turnover PBITA Margins Organic Growth ‚£m ‚£m * At constantexchange rates 2007 2006 2007 2006 2007 2006 2007Europe * 1,671.3 1,534.1 109.9 101.2 6.6% 6.6% 6.3%North America * 1,043.8 970.8 61.5 58.2 5.9% 6.0% 7.3%New Markets * 788.7 589.2 63.4 45.3 8.0% 7.7% 17.0%Total Security 3,503.8 3,094.1 234.8 204.7 6.7% 6.6% 8.7%Services *Exchange - 106.7 - 6.8differencesAt actual exchange 3,503.8 3,200.8 234.8 211.5rates
The security services business continued its strong performance with good organic growth of 8.7% and margins improving to 6.7%.
Europe Turnover PBITA Margins Organic Growth ‚£m ‚£m * At constant exchangerates 2007 2006 2007 2006 2007 2006 2007UK & Ireland * 593.0 539.7 48.4 44.1 8.2% 8.2% 6.0%Continental Europe * 1,078.3 994.4 61.5 57.1 5.7% 5.7% 6.5%Total Europe * 1,671.3 1,534.1 109.9 101.2 6.6% 6.6% 6.3%
Organic growth in Europe was 6.3% compared to 5% in the same period last year. Margins were maintained at 6.6%.
There was good organic growth of 6.0% in the UK & Ireland and margins remainedstrong at 8.2%. Customer retention rates in the security business were high ataround 95% and there were a number of significant contract wins in the year. Anew contract to assist passengers with restricted mobility at London GatwickAirport will commence in April 2008. Good growth continues in the electronicmonitoring contract and Parc prison at Bridgend continues to expand.
A number of acquisitions were made in the region aimed at increasing the expertise of the group in key sectors in line with the group strategy. The acquisition of GSL was announced in December 2007 and this should complete within the first half of 2008.
The Netherlands had a strong year, increasing revenue and achieving verystrong margins. The company successfully retained the Schipol airport contractfor a further 5 years. Capability-building acquisitions were made in the fireand safety training sector consolidating its market leading position as asafety and security solutions provider in the country.In the Baltics, growth was over 20% and margins improved significantly on theprior year due to strong price increase programmes across all services and thecompletion of large systems installation projects at Tallinn Airport, RigaPort and for the Lithuanian Customs Service.There was good growth and strong margins in Denmark despite the businessincurring significant re-branding costs. Growth in Belgium was slow, but therewas a significant improvement in margins from the systems business and throughperformance management improvements across the business.In Sweden, margins were negatively impacted by restructuring and the loss ofthe Arlanda contract in February although there were some good contract winsin the second half of the year. 2007 was a consolidation year focusing uponstrengthening the management team, right-sizing the company and developing asolid platform to execute the new strategy.In Romania the business achieved excellent growth, largely as a result of theoutsourcing of a wide range of security-related services by the Romanian PostOffice.In Greece, business performance improved compared to the prior year as aresult of improved control of labour costs. The difficult labour environmentin the country has now stabilised. New contract wins in the security systemsbusiness in Israel early in 2008 will add to the good organic growth achievedin 2007.North America Turnover PBITA Margins Organic Growth ‚£m ‚£m * At constant exchangerates 2007 2006 2007 2006 2007 2006 2007
North America * 1,043.8 970.8 61.5 58.2 5.9% 6.0% 7.3%
Organic growth in North America was strong at 7.3% overall and margins were 5.9%.
In the United States overall organic growth was solid at around 6%, with around 9% growth in the commercial sector, largely due to the start up and expansion of the Mexican border control contract which is performing well.
There were significant contract bidding and start up costs in the governmentsector in the last quarter of 2007, which meant that margins were held atprior year levels. The government business won significant contracts towardsthe end of the year which will flow through in 2008.
In Canada organic growth was strong and margins were maintained at prior year levels despite a difficult pricing environment and tight labour markets.
New Markets Turnover PBITA Margins Organic Growth ‚£m ‚£m * At constant exchangerates 2007 2006 2007 2006 2007 2006 2007Asia * 268.9 221.9 22.9 17.6 8.5% 7.9% 17.0%Middle East * 177.9 115.9 14.2 10.1 8.0% 8.7% 19.7%Africa * 183.9 139.7 16.0 11.3 8.7% 8.1% 15.2%Latin America & 158.0 111.7 10.3 6.3 6.5% 5.6% 16.6%Caribbean *Total New Markets * 788.7 589.2 63.4 45.3 8.0% 7.7% 17.0%
In New Markets, organic growth was strong at 17% and margins increased by 0.3% to 8.0%.
Organic growth in Asia was 17% and margins improved to 8.5%. In Hong Kong thebusiness performed strongly as a result of focusing on key market segments andimproved opportunities from combined security systems and manned securitycontracts.
Macau continued to grow very strongly along with the regions increasing reputation as a venue for conferences, events and exhibitions, resulting in increased security spend for both permanent contracts and event security services.
India continued to perform well with excellent growth of around 28% and strong margins. G4S is the second largest private employer in India and we have recently won contracts for security at four airports in Delhi, Mumbai, Hyderabad and Cochin.
In the Middle East, organic growth was very strong at 19.7% and margins wereat 8.0%, driven by the continuing economic boom in the region coupled with asurge in tourism.
In Saudi Arabia the acquisition and integration of al Majal earlier in the year means that G4S is now the market leading security company in the Kingdom.
We entered four new countries in the region in 2007 - Mauritius, Mauritania, Cambodia and Sri Lanka.
In Africa organic growth was 15.2% and margins improved strongly to 8.7%. In South Africa the business is improving largely as a result of increasing efficiency in the operations.
The business in Kenya performed very well this year with good growth and a strong profit performance. Despite the recent political turmoil in Kenya the security services business has won significant new contracts in the first month of 2008.
Elsewhere in Africa, Botswana, DRC, Malawi, Mozambique and Namibia all performed well as a result of strong organic growth.
In the Latin America & Caribbean region growth was strong at 16.6% and margins improved to 6.5%.
Argentina improved significantly from 2006 through a targeted effort to increase cost recovery from customers and from an expansion into the security of gas and oil facilities within the southernmost part of the country.
In Chile we reported our first full year of results from the acquisition madein late 2006 where the acquired company performed well. Guatemala continues topost strong margins despite increased competition and the continued shortageof labour.The various businesses within Colombia performed extremely well in comparisonto 2006. The improved security situation and increased market share within ourvarious markets contributed to a strong result.Cash Services Turnover PBITA Margins Organic Growth* At constant ‚£m ‚£mexchange rates 2007 2006 2007 2006 2007 2006 2007Europe * 706.3 629.7 77.4 68.4 11.0% 10.9% 11.6%North America * 78.0 83.0 0.6 1.9 0.8% 2.3% (6.0)%New Markets * 202.3 116.4 29.7 16.1 14.7% 13.8% 17.0%Total Cash 986.6 829.1 107.7 86.4 10.9% 10.4% 10.6%Services *Exchange - 6.9 - 0.6differencesAt actual exchange 986.6 836.0 107.7 87.0rates
The Cash Services business continued its very strong first half performance with organic growth of 10.6% and margins of almost 11%. Organic growth in Europe was excellent at 11.6% with strong margins of 11%.
In the UK & Ireland region there was solid revenue growth and positive marginenhancement as a result of strong performances in the ATM and cash managementbusinesses. In the last quarter of 2007, the UK business won a substantialcontract with HBOS for out of hours bank branch servicing and it continues towin business from competitors as they cope with operational issues. In Irelandthere was good growth and margins should improve in 2008 due to theimplementation of a post office outsourcing contract.
There was slow growth but strong margins in the Netherlands as a result of strong operational controls. The implementation of the Swedbank ATM management contract contributed to substantial revenue growth and strong margins in Sweden.
In Belgium there was good growth in ATMs and cash management, largely from expanding existing customer contracts. In the Czech Republic and Hungary there was solid revenue growth and improving margins.
The implementation of the post office outsourcing contract in Romania hasdriven extremely strong growth and margin improvements. Further phases of thisproject will be implemented in 2008. The successful introduction of the euroin Cyprus and Malta contributed to strong growth and margin development.In North America there was negative organic growth in Canada and marginperformance was affected by the loss of two significant contracts. A new CEOjoined the business in 2007 and is already beginning to have a positive impacton the business.Organic growth in New Markets was very strong at 17.0% with margins improvingto 14.7%. There were excellent results across the region in Asia, Middle East,Africa and Latin America.
Cash outsourcing opportunities are beginning to develop in Malaysia and Indonesia as financial institutions and central banks are focusing on their core services and driving efficiencies in the cash cycle. In Hong Kong pricing pressure remains in the market, but there are opportunities for growth from the deployment of self service terminals in the banking sector.
In the UAE, the business has extended its cash management offer into credit card management and distribution services and has been awarded the contract for distribution of the new national ID cards in India. In Thailand, a new state-of-the-art cash centre has allowed the business to expand rapidly.
G4S entered the cash services market in South Africa in the first quarter of2007 through the acquisition of Fidelity Cash Management. The business isperforming well with good growth, particularly in the ATM sector, and strongmargins.
There was very strong organic growth in Kenya as a result of further outsourcing in the financial services sector. The introduction of new technology has provided our business with a unique competitive advantage in the market.
The continued improvement of the internal security situation within Colombiahas resulted in increased economic activity and movement of funds within thecountry. Accordingly, the cash services business has benefited greatly fromthe increased activity during the whole of 2007.OTHER FINANCIAL ISSUESAcquisitions & Disposals
The group invested ‚£132m in acquisitions in the year. The largest of these were Fidelity Cash Management Services PTY in South Africa and al Majal Service Master LLC, a facilities management business, in Saudi Arabia. The only significant divestment made in the year was G4S Cash Services (France). The proceeds from disposals amounted to ‚£8m. ‚£65m of liabilities for acquisitions has been recognised in respect of put options held by minorities.
In December 2007, we announced that we had reached agreement to acquire GlobalSolutions Ltd (GSL) subject to approval from the relevant competitionauthorities. We are expecting the transaction to be approved in the first halfof this year. Integration planning has gone well and we expect the acquisitionto be earnings enhancing in 2008.A process has commenced for the divestment of our remaining businesses inFrance and Germany and therefore they have been treated as discontinued itemsfor the purposes of this results announcement. These businesses are consideredto be sub-scale and with our focus on delivering the new group strategy in2008, the funds released will be used to bring additional capabilities intothe group. The combined businesses generated revenues of ‚£256m in 2007.
Financing & Interest
During 2007, the lending banks exercised their options to extend the term ofthe group's ‚£1billion multicurrency revolving credit facility to 28 June 2012.The margin continues at 0.225% over LIBOR. An additional ‚£87m facility withanother bank on the same terms was added on 1 February 2007.
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%.
On 7 March 2008, the group signed committed bank facilities amounting to‚£300m. These facilities expire on 31 December 2008 although the group canexercise an option to extend the facilities to 30 June 2009. The margin is0.35% over LIBOR. The purpose of these facilities is to provide the group withheadroom whilst assessing options in the capital markets. The group does notexpect to drawdown on these facilities.
The group has other short-term committed facilities of ‚£30m and uncommitted facilities of ‚£411m.
As of 31 December 2007, net debt was ‚£804.9m representing a gearing of 72%. The group has sufficient borrowing capacity to finance current investment plans.
Net interest payable on net debt was ‚£57.4m. This is an increase of 36% overthe 2006 cost of ‚£42.1m, due principally to the rising costs of borrowing andthe increase in the group's average gross debt.The group's average cost of gross borrowings in 2007 was 5.7% compared to 4.7%in 2006. The cost, based as at 31 December 2007, was 5.7% compared to 5.2% at31 December 2006.Also included within financing is net other interest costs of ‚£1.3m and netincome of ‚£5.0m (2006: net income of ‚£1.0m) in respect of movements in thegroup's retirement benefit obligations.
Taxation
The effective tax rate for the year on adjusted earnings was 27.5%, compared to 28.6% in 2006. The group believes that this rate is sustainable going forward.
Retirement benefit obligations
The group's funding shortfall on funded defined retirement benefit schemes, onthe valuation basis specified in IAS19 Employee Benefits, was ‚£138m before taxor ‚£99m after tax (2006: ‚£226m and ‚£158m respectively). The main schemes arein the UK. The latest full actuarial valuations were undertaken at 5 April2006 in respect of the Securicor scheme and 31 March 2007 in respect of theGroup 4 scheme.The valuation of gross liabilities was broadly unchanged from 2006, with thecharge of the year's finance cost being offset by an increase in theappropriate AA corporate bond rate from 5.2% to 5.8%. The value of the assetsheld in the funds increased by ‚£74m during 2007, assisted by additionalcompany contributions of ‚£26m.The group believes that, over the very long term in which retirement benefitsbecome payable, investment returns should eliminate the deficit reported inthe schemes in respect of past service liabilities. However, in recognition ofthe regulatory obligations upon pension fund trustees to address reporteddeficits, the group anticipates that additional cash contributions willcontinue to be made at a level similar to that in 2007.
Dividend
The directors recommend a final dividend of 2.85p per share (DKK 0.2786). Thisrepresents an increase of 13.1% on the final dividend for 2006. The interimdividend was 2.11p per share (DKK 0.2319) and the total dividend, if approved,will be 4.96p per share (DKK 0.5105), representing an increase of 17.8% on thetotal dividend for 2006.The proposed dividend cover is 2.7 times (2006: 2.9 times) on adjustedearnings, further analysis of which is on page 19. This is in accordance withthe group's reaffirmed intention to reduce dividend cover to around 2.5 timesby 2008.REVIEW AND OUTLOOK
We are extremely pleased with the performance of the business in 2007 and feel confident about the further development of the group this year.
In developed markets we have achieved a solid result with organic growth of 7.3% and margins in line with the previous year at 7.1% - demonstrating that even in tough economic environments, the underlying performance across our developed markets businesses is robust and reliable.
The increased organic growth of 17% and improved margins in developing marketshas driven an overall margin improvement of 0.2% across the group. Developingmarkets continue to grow at significant rates and with our unique position andexperience of operating in these markets we are well-placed to continue todrive forward the performance of our businesses in these countries.We have introduced the investment community to the next phase of our strategywhich we believe will drive accelerated growth and development for the group.The strategy focuses on taking greater responsibility for managing risk onbehalf of our customers - extending from our core capabilities to developtotal risk management and secure outsourcing solutions across our servicerange and geographies.In order to achieve this, we need to invest in building our own capabilitiesand expertise by continuing to share best practice, by developing our seniormanagement population and by acquiring businesses or individuals who bringunique expertise to the organisation. We have already announced a number ofacquisitions which help us drive the strategy forward, the most significantbeing Global Solutions Ltd (GSL).
Overall, the outlook for the business is good and we are not expecting the recent economic uncertainties to impact our ability to continue to deliver strong results in the future. Our business model is robust and defendable and our future strategy will build upon our key strengths to deliver enhanced performance.
11 March 2008G4S plcUnaudited preliminary results announcementFor the year ended 31 December 2007Consolidated income statementFor the year ended 31 December 2007 Notes 2007 2006 ‚£m ‚£m Continuing operations Revenue 2 4,490.4 4,036.8 Profit from operations before amortisation of acquisition-related intangibleassets and share ofprofit from associates 309.1 271.6Share of profit from associates 3.0 2.8Profit from operations before amortisationof acquisition-related intangible assets (PBITA) 2 312.1 274.4 Amortisation of acquisition-related intangible assets (41.6) (36.0) Profit from operations before interest and taxation (PBIT)
2, 3 270.5 238.4 Finance income 6 92.6 79.5Finance costs 7 (146.3) (118.4)
Profit before taxation (PBT) 216.8 199.5
Taxation:
- Before amortisation of acquisition-related intangible assets (71.1) (67.4)- On amortisation of acquisition-related intangible assets
14.9 10.8 8 (56.2) (56.6)Profit after taxation 160.6 142.9
Loss from discontinued operations
4 - (33.0) Profit for the year 160.6 109.9 Attributable to:
Equity holders of the parent
147.2 96.5Minority interests 13.4 13.4Profit for the year 160.6 109.9
Earnings per share attributable to equity shareholders of the parent
10
For profit from continuing operations:Basic 11.5p 10.2pDiluted 11.5p 10.2p For profit from continuing and discontinued operations:Basic 11.5p 7.6pDiluted 11.5p 7.6p
Dividends declared and proposed in respect of the year
9 2007 2006 Interim 2.11p 1.69p 27.0 21.4Final 2.85p 2.52p 36.3 32.3Total 4.96p 4.21p 63.3 53.7Consolidated balance sheetAt 31 December 2007 Notes 2007 2006 ‚£m ‚£m ASSETSNon-current assetsGoodwill 1,332.4 1,175.6Other acquisition-related intangible assets 219.9 220.6Other intangible assets 31.3 22.2Property, plant and equipment 400.9 354.9Investment in associates 10.2 7.3Trade and other receivables 69.4 49.9Deferred tax assets 84.2 115.7 2,148.3 1,946.2 Current assetsInventories 57.1 49.5Investments 73.2 73.7Trade and other receivables 885.0 798.3Cash and cash equivalents 381.3 307.5Assets classified as held for sale 11 130.9 - 1,527.5 1,229.0 Total assets 3,675.8 3,175.2 LIABILITIESCurrent liabilitiesBank overdrafts (109.9) (97.5)Bank loans (80.6) (70.1)Obligations under finance leases (16.2) (13.6)Trade and other payables (845.7) (710.2)Current tax liabilities (18.0) (26.3)Retirement benefit obligations (47.3) (42.2)Provisions (23.6) (41.3)Liabilities associated with assets classified as held for sale 11 (78.3) - (1,219.6) (1,001.2) Non-current liabilitiesBank loans (729.1) (830.3)Loan notes (290.4) -Obligations under finance leases (46.0) (42.5)Trade and other payables (38.7) (1.0)Retirement benefit obligations (120.1) (208.3)Provisions (33.9) (38.7)Deferred tax liabilities (75.0) (81.7) (1,333.2) (1,202.5) Total liabilities (2,552.8) (2,203.7) Net assets 1,123.0 971.5 EQUITYShare capital 320.2 320.0Share premium and reserves 766.9 615.2Equity attributable to equity holders of the parent 12 1,087.1 935.2Minority interests 35.9 36.3Total equity 1,123.0 971.5Consolidated cash flow statementFor the year ended 31 December 2007 Notes 2007 2006 ‚£m ‚£m Profit before taxation 216.8 199.5
Loss before taxation from discontinued operations
(0.3) (31.6) Adjustments for:Finance income (92.6) (79.5)Finance costs 146.3 118.4
Finance costs attributable to discontinued operations 3.3 3.0Depreciation of property, plant and equipment 91.1 82.8Amortisation of acquisition-related intangible assets 41.6 36.0Amortisation of other intangible assets 8.5 7.4Impairment of other intangible assets - 2.5
Profit on disposal of property, plant and equipment and intangible assets other than acquisition-related
(14.4) (1.6)(Profit)/loss on disposal of discontinued operations (12.0) 14.0Share of profit from associates (3.0) (2.8)Equity-settled transactions 4.1 5.0Operating cash flow before movements in working capital
389.4 353.1 Increase in inventories (9.6) (6.9)Increase in receivables (69.7) (17.7)
Increase/(decrease) in payables
84.1 (13.5)Decrease in provisions (36.7) (47.6)Cash generated by operations 357.5 267.4 Tax paid (66.2) (70.3)
Net cash flow from operating activities
291.3 197.1 Investing activitiesInterest received 24.9 11.5Cash flow from associates 1.0 2.7
Purchases of property, plant and equipment and intangible assets other than acquisition-related
(134.5) (93.2) Proceeds on disposal of property, plant and equipment and intangible assets other than acquisition-related
25.5 10.7Acquisition of subsidiaries (151.6) (96.7)Net cash balances acquired 11.6 3.5Disposal of subsidiaries 7.9 9.9Purchase of investments (0.3) (21.8)Own shares purchased (3.1) (3.1)
Net cash used in investing activities
(218.6) (176.5) Financing activitiesShare issues 0.9 9.1
Dividends paid to minority interests (3.8) (3.0)Loan to minority interests (13.3) -Dividends paid to equity shareholders of the parent (59.3) (49.8)Proceeds on issue of loan notes 280.6 -
Repayment of revolving credit facilities with proceeds from issue of loan notes
(280.6) -Other net movement in borrowings 140.4 95.1Interest paid (79.9) (59.3)Net cash flow from hedging financial instruments (4.3) 11.8Repayment of obligations under finance leases (4.6) (8.4)Net cash flow from financing activities
(23.9) (4.5)
Net increase in cash, cash equivalents and bank overdrafts
13 48.8 16.1
Cash, cash equivalents and bank overdrafts at the beginning of the year
210.0 205.1Effect of foreign exchange rate fluctuations on cash held 11.9 (11.2)Cash, cash equivalents and bank overdrafts at the end of the year 270.7 210.0
Consolidated statement of recognised income and expense
For the year ended 31 December 2007
2007 2006 ‚£m ‚£m Exchange differences on translation of foreign operations 37.4 (42.6)Change in fair value of net investment hedging financial instruments (19.0) 11.6Change in fair value of cash flow hedging financial instruments (7.0) 1.1Actuarial gains/(losses) on defined retirement benefit schemes 64.7 (33.4)Tax on items taken directly to equity (14.0) (1.4)Net income/(expense) recognised directly in equity 62.1 (64.7)Profit for the year 160.6 109.9Net recognised income 222.7 45.2 Attributable to:Equity holders of the parent 209.3 31.8Minority interests 13.4 13.4Net recognised income 222.7 45.2
Notes to the preliminary results announcement
1) Basis of preparation and accounting policies
A resolution was passed at the 2007 Annual General Meeting, held on 31 May 2007, to change the company's name from
Group 4 Securicor plc to G4S plc. The primary statements and selected notes inthis preliminary results announcement do not constitute the company'sfinancial statements within the meaning of Section 240 of the Companies Act1985 for the years ending 31 December 2007 or 2006. The notes included in thisannouncement are in some cases summaries of those included in the statutoryaccounts. Statutory accounts for the year ended 31 December 2006 have beenfiled with the Registrar of Companies. The auditor's report on those accountswas unqualified and did not contain any statement under Section 237 of theCompanies Act 1985.The preliminary results announcement for the year ended 31 December 2007 hasbeen prepared in accordance with International Financial Reporting Standardsas adopted by the European Union (adopted IFRSs) at 31 December 2007. Detailsof the accounting policies applied are those set out in the 2006 Annual Reportand Accounts. The financial statements will be delivered to the Registrar ofCompanies in due course.The comparative income statement for the year ended 31 December 2006 has beenre-presented for operations qualifying as discontinued during the currentyear. Revenue from continuing operations has been reduced by ‚£316.8m and PBThas been reduced by ‚£0.5m compared to the figures published previously. Inaddition, the comparative balance sheet as at 31 December 2006 has beenrestated to reflect the completion during 2007 of the initial accounting inrespect of acquisitions made during 2006. Adjustments made to the provisionalcalculation of the fair values of assets and liabilities acquired amount to‚£4.7m, with an equivalent increase in the reported value of goodwill.
2) Segmental analysis
The group operates in two core product areas: security services and cash services. The group operates on a worldwide basis and derives a substantial proportion of its revenue and PBIT from each of the following geographical 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 areaand geography, within which the larger businesses generally report by productarea. The group's primary segmentation is therefore by business segment andits secondary segmentation is by geography.
Segment information for continuing operations is presented below:
Segment revenueRevenue by business segment 2007 2006 ‚£m ‚£m Security ServicesUK and Ireland 593.0 539.7Continental Europe 1,078.3 985.4Europe 1,671.3 1,525.1North America 1,043.8 1,049.9Middle East and Gulf States 177.9 125.5
Latin America and the Caribbean 158.0 117.7
Africa 183.9 152.6Asia Pacific 268.9 230.0New Markets 788.7 625.8Total Security Services 3,503.8 3,200.8 Cash ServicesEurope 706.3 628.8North America 78.0 85.3New Markets 202.3 121.9Total Cash Services 986.6 836.0Total revenue 4,490.4 4,036.8
Notes to the preliminary results announcement (continued)
2) Segmental analysis (continued)
Revenue by geographical market 2007 2006 ‚£m ‚£m Europe 2,377.6 2,153.9North America 1,121.8 1,135.2New Markets 991.0 747.7Total revenue 4,490.4 4,036.8PBITA by business segment 2007 2006 ‚£m ‚£m Security ServicesUK and Ireland 48.4 44.1Continental Europe 61.5 56.5Europe 109.9 100.6North America 61.5 62.7Middle East and Gulf States 14.2 10.9
Latin America and the Caribbean 10.3
6.3Africa 16.0 12.5Asia Pacific 22.9 18.5New Markets 63.4 48.2Total Security Services 234.8 211.5 Cash ServicesEurope 77.4 67.8North America 0.6 1.8New Markets 29.7 17.4Total Cash Services 107.7 87.0Total PBITA before head office costs 342.5 298.5Head office costs (30.4) (24.1)Total PBITA 312.1 274.4 PBITA by geographical market Europe 187.3 168.4North America 62.1 64.5New Markets 93.1 65.6Total PBITA before head office costs 342.5 298.5Head office costs (30.4) (24.1)Total PBITA 312.1 274.4Result by business segment 2007 2006 ‚£m ‚£m Total PBITA 312.1 274.4Amortisation of acquisition-related intangible assets (41.6) (36.0)Total PBIT 270.5 238.4 Security Services 215.4 195.4Cash Services 85.5 67.1Head office costs (30.4) (24.1)Total PBIT 270.5 238.4
3) Profit from operations before interest and taxation (PBIT)
The income statement can be analysed as follows:
Continuing operations 2007 2006 ‚£m ‚£m Revenue 4,490.4 4,036.8Cost of sales (3,485.4) (3,158.0)Gross profit 1,005.0 878.8Administration expenses (737.5) (643.2)Share of profit from associates 3.0 2.8PBIT 270.5 238.4
Included within administration expenses is the amortisation charge for acquisition-related intangible assets.
4) Discontinued operations
Operations qualifying as discontinued in the current year primarily comprise: G4S Cash Services (France) SAS, disposed of on
2 July 2007; the security services businesses in France, which principally include Group 4 Securicor SAS; and the security services businesses in Germany, which principally include G4S Sicherheitsdienste GmbH and G4S Sicherheitssysteme GmbH, Berlin. The disposal of the security services businesses in both France and Germany is still in progress.
Additionally, operations qualifying as discontinued in the prior year primarily comprise the German cash services business of
G4S Geld-und Wertdienste GmbH, where terms were agreed for divestment on 22 December 2006, and the business and assets of Cognisa Transportation, Inc, disposed of on 28 December 2006.
5) Acquisitions
The group undertook a number of acquisitions in the year. The total fair valueof net assets acquired amounted to ‚£38.4m which included the recognition of‚£37.2m of acquisition-related intangible assets, generating goodwill of‚£179.2m, satisfied by a total consideration of ‚£217.6m, of which ‚£151.6m hasbeen paid in the year.Principal acquisitions in subsidiary undertakings include the purchase ofcontrolling interests in: Fidelity Cash Management Services (PTY) Ltd, inSouth Africa; al Majal Service Master LLC, a facilities management business inSaudi Arabia; and in RIG - PR Ltd, a specialist police recruitment agency inthe United Kingdom. In addition, the group increased its interests in Israeland Mozambique.In December 2007, the group announced the acquisition of the entire sharecapital of Global Solutions Ltd (GSL) for a total consideration of ‚£355mpayable in cash on completion. GSL is an international leader in the provisionof support services for governments, companies and public authorities. Theacquisition is subject to approval from the European Commission and the SouthAfrican Competition Commission. The acquisition is expected to completefollowing the receipt of such approvals in 2008.6) Finance income 2007 2006 ‚£m ‚£m
Interest income on cash, cash equivalents and investments 12.4 9.9 Other interest income
2.9 2.4Expected return on defined retirement benefit scheme assets 77.3 67.2Total finance income 92.6 79.57) Finance costs 2007 2006 ‚£m ‚£m
Interest on bank overdrafts, loans and loan notes 66.5 49.6 Interest on obligations under finance leases
3.3 2.4Other interest charges 4.2 0.2Total group borrowing costs 74.0 52.2Finance costs on defined retirement benefit obligations 72.3 66.2Total finance costs 146.3 118.48) Taxation 2007 2006 ‚£m ‚£m Current taxation expense (60.0) (57.0)Deferred taxation credit 3.8 0.4Total income tax expense for the year (56.2) (56.6)The total income tax expense for the year includes amounts attributable to theUK of ‚£8.4m (2006: ‚£16.8m), which includes a ‚£1.7m credit resulting from thedeferred tax movement arising from the reduction in the UK corporation tax
rate from 30% to 28%.9) Dividends Pence DKK 2007 2006 per share per share ‚£m ‚£m
Amounts recognised as distributions to equity holders of the parent in the year Final dividend for the year ended 31 December 2005
2.24 0.2435 - 28.3Interim dividend for the six months ended 30 June 2006 1.69 0.1863 - 21.5Final dividend for the year ended 31 December 2006 2.52 0.2766 32.0 -Interim dividend for the six months ended 30 June 2007
2.11 0.2319 27.3 -
59.3 49.8 Proposed final dividend for the year ended 31 December 2007
2.85p 0.2786 36.3
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting. If so approved, it will be paid on 6 June 2008 to shareholders who are on the register on 2 May 2008. The exchange rate used to translate it into Danish Kroner is that at 10 March 2008.
10) Earnings/(loss) per share attributable to equity shareholders of theparent 2007 2006 ‚£m ‚£mFrom continuing and discontinued operations
Earnings
Profit for the year attributable to equity holders of the parent 147.2 96.5Effect of dilutive potential ordinary shares (net of tax) 0.2 0.3Profit for the purposes of diluted earnings per share
147.4 96.8
Number of shares (m)Weighted average number of ordinary shares 1,275.2 1,268.3Effect of dilutive potential ordinary shares
1.5 5.4 Weighted average number of ordinary shares for the purposes of diluted earnings/(loss) per share
1,276.7 1,273.7
Earnings per share from continuing and discontinued operations (pence)Basic 11.5p 7.6pDiluted 11.5p 7.6p From continuing operations Earnings
Profit for the year attributable to equity holders of the parent 147.2 96.5Adjustment to exclude loss for the year from discontinued operations (net oftax) - 33.0Profit from continuing operations 147.2 129.5Effect of dilutive potential ordinary shares (net of tax)
0.2 0.3 Profit from continuing operations for the purpose of diluted earnings per share
147.4 129.8
Earnings per share from continuing operations (pence)Basic 11.5p 10.2pDiluted 11.5p 10.2p From discontinued operations Loss per share from discontinued operations (pence)Basic - (2.6)pDiluted - (2.6)p From adjusted earnings Earnings
Profit from continuing operations 147.2 129.5Adjustment to exclude net retirement benefit finance income (net of tax)
(3.6) (0.7) Adjustment to exclude amortisation of acquisition-related intangible assets (net of tax)
26.7 25.2Adjusted profit for the year attributable to equity holders of the parent
170.3 154.0
Weighted average number of ordinary shares (m)
1,275.2 1,268.3
Adjusted earnings per share (pence)
13.4p 12.1p
In the opinion of the directors the earnings per share figure of most use toshareholders is that which is adjusted. This figure better allows theassessment of operational performance, the analysis of trends over time, thecomparison of different businesses and the projection of future earnings.
11) Disposal groups classified as held for sale
Disposal groups classified as held for sale as at 31 December 2007 primarilycomprise the assets and liabilities associated with the security servicesbusinesses in France, which principally include Group 4 Securicor SAS, and thesecurity services businesses in Germany, which principally include G4SSicherheitsdienste GmbH and G4S Sicherheitssysteme GmbH, Berlin.12) Summary reconciliation of equity attributable to equity holders of the parent Share Share capital Reserves Total capital Reserves Total 2007 2007 2007 2006 2006 2006 ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m At beginning of year 320.0 615.2 935.2 317.2 625.0 942.2Net recognised income attributableto equity shareholders of the parent - 209.3 209.3 - 31.8 31.8Shares issued 0.2 0.7 0.9 2.8 6.3 9.1Dividends declared - (59.3) (59.3) - (49.8) (49.8)Own shares purchased - (3.1) (3.1) - (3.1) (3.1)
Equity-settled transactions - 4.1 4.1 -
5.0 5.0At end of year 320.2 766.9 1,087.1 320.0 615.2 935.213) Analysis of net debtA reconciliation of net debt to amounts in the consolidated balance sheet ispresented below: 2007 2006 ‚£m ‚£m Cash and cash equivalents 381.3 307.5Investments 73.2 73.7Net debt included within disposal groups classified as held for sale (1.5) -Bank overdrafts (109.9) (97.5)Bank loans (809.7) (900.4)Loan notes (290.4) -Fair value of loan note derivative financial instruments 14.3 -Obligations under finance leases (62.2) (56.1)Total net debt (804.9) (672.8)
An analysis of movements in net debt in the year is presented below:
2007 2006 ‚£m ‚£m Increase in cash, cash equivalents and bank overdrafts per consolidated cashflow statement 48.8 16.1Purchase of investments 0.3 21.8
Increase in debt and lease financing (135.8) (86.7)Change in net debt resulting from cash flows (86.7) (48.8)Borrowings acquired with subsidiaries (22.9) (2.5)Net additions to finance leases (10.3) (19.6)Movement in net debt in the year (119.9) (70.9)Translation adjustments (12.2) 55.4Net debt at the beginning of the year (672.8) (657.3)Net debt at the end of the year (804.9) (672.8)Non GAAP measure - cash flow
The directors consider it is of assistance to shareholders to present an analysis of the group's operating cash flow in accordance with the way in which the group is managed, together with a reconciliation of that cash flow to the net cash flow from operating activities as presented in the consolidated cash flow statement.
Operating cash flowFor the year ended 31 December 2007 2007 2006 ‚£m ‚£m
PBITA before share of profit from associates (group PBITA)
309.1 271.6 Depreciation and amortisation of intangible assets other than acquisition-related
99.6 92.7 Profit on disposal of property, plant and equipment and intangible assets other than acquisition-related
(14.4) (1.6)Movement in working capital and provisions (8.9) (45.8)Net cash flow from capital expenditure
(109.0) (82.5)Operating cash flow 276.4 234.4
Reconciliation of operating cash flows
2007 2006 ‚£m ‚£m
Net cash flow from operating activities per consolidated cash flow statement 291.3 197.1 Net cash flow from capital expenditure
(109.0) (82.5)Add-back cash flow from exceptional items and discontinued operations 1.8 25.3Add-back additional pension contributions
26.1 24.2Add-back tax paid 66.2 70.3Operating cash flow 276.4 234.4
G4S PLCRelated Shares:
GFS.L