G4S plc UK DK : Annual Financial Report
10 April 2018
Integrated Report and Accounts and Notice of Annual General Meeting
Further to the preliminary announcement of its results for the year ended 31 December 2017 made on 8 March 2018, G4S plc, the global, integrated security solutions provider, announces that it has published its 2017 Integrated Report and Accounts for the same period.
The Company confirms that the following documents have been posted or otherwise made available to shareholders:
- 2017 Integrated Report and Accounts
- Notice of the Company's Annual General Meeting ("AGM") dated 3 April 2018
- associated form of proxy
The AGM will be held on Tuesday, 15 May 2018 at 2.00 pm in The Orchard Suite at the Holiday Inn, Gibson Road, Sutton, Surrey, SM1 2RF, UK.
The 2017 Integrated Report and Accounts and the Notice of Meeting with the explanatory notes accompanying it have been submitted to, and will be available from, the National Storage Mechanism. These documents are also available on the Company's website: www.g4s.com/en/Investors.
A condensed set of the Company's financial statements and extracts of the management report were included in the Company's preliminary final results announcement.
That information, together with the Appendix to this announcement, which contains additional information extracted from the 2017 Integrated Report and Accounts for the year ended 31 December 2017, 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 is available at www.g4s.com/en/Investors.
This announcement should be read in conjunction with, and is not a substitute for, reading the full 2017 Integrated Report and Accounts. Together these constitute the information required by DTR 6.3.5, which must be communicated in unedited full text, through a Regulatory Information Service.
References in this announcement to the Company's website are intended to refer only to the specific documents mentioned herein and not to other information available on that website.
Page and note references in the text below refer to page numbers and notes in the 2017 Integrated Report and Accounts.
The group's principal risks and uncertainties:
A description of the principal risks and uncertainties that the Company faces is extracted from pages 62 to 65 of the 2017 Integrated Report and Accounts.
HEALTH AND SAFETY (H&S)
The provision of security services to protect valuable assets, often in hostile or dangerous circumstances, presents health and safety challenges. In addition to the significant impact on individuals, a serious breach of health and safety could disrupt the Group's business, have a negative impact on our reputation and lead to financial and regulatory costs. In 2017, 25 (2016: 47) employees lost their lives in work-related incidents, of which eight (2016: 20) were as a result of armed attacks and 11 (2016: 17) were road-traffic incidents as the year-on-year improvement in road safety continued. There were three (2016: 9) non-natural deaths of people in our custody.
We are committed to protecting the health, safety and well-being of our staff, people in our care or custody and third parties. The Group's mandatory H&S standards target the critical safety risks in the Group including road and firearm safety and are supplemented by training for front-line staff through to business leaders. During 2017 the annual self-assessment by countries of compliance with our standards was supported by site reviews from local, regional and Group H&S managers and was included in the scope of country internal audit visits. Reporting was enhanced to include high potential incidents which are investigated thoroughly. Controls are reviewed in light of lessons learned from serious incidents.
We reviewed the appropriateness of our 'Golden Rules' which reflect critical safety risks and are mandatory for all G4S businesses, and failure to adhere to them is linked to our disciplinary procedures. Good practice and progress in delivering H&S improvements are recognised and rewarded, while poor practice and insufficient progress lead to close executive scrutiny, and can impact performance-related pay for business leaders if appropriate.
Mitigation priorities for 2018
We will continue to refine our standards, policies and controls where we see an opportunity to reduce H&S risks further. The compliance with these group requirements will again be self assessed during 2018 and reviewed by H&S and internal audit teams. A revised H&S training programme for our front-line employees is under development which supplements existing training provided by businesses on key H&S risks. Safety improvement plans are required for all businesses. Business leaders take responsibility for leading safety performance and putting H&S at the forefront of their day-to-day activities.
CULTURE AND VALUES
G4S provides security for people, premises and valuable assets. The Care & Justice services business provides services to detainees, victims of crime, people needing assistance, and other members of the public. We operate in many different countries with a diversity of local and national cultures. Having an appropriate set of values strongly embedded as our corporate culture is very important to ensure staff meet our high expectations including compliance with our ethical business conduct standards. Failure to do so risks not delivering on our commitment to our colleagues, customers and other stakeholders and may fail to comply with legislation and international standards.
We have a set of values, detailed on page 17, which are continually reinforced to all employees through a variety of key processes including recruitment, induction training, and recognition schemes as well as communications materials. Nominated values ambassadors in businesses are helping to cascade values-related communications. HR and learning and development leaders have assisted in the production of materials for increasing awareness and understanding of our values. In everything we do, no matter how challenging the circumstances, we require our people to behave in line with our values and to be prepared to use our whistleblowing facility, Speak Out, if they become aware that others are not doing so. Ethics steering committees at a Group level and in each region oversee the whistleblowing investigation process and provide constructive guidance to countries on ethical matters. We continue to focus on building awareness of the importance of our corporate values and whistleblowing, particularly in places where we work with people who may be more vulnerable and have less opportunity to raise concerns themselves. In 2017, our whistleblowing hotline and case-management system received a total of 300 reports from our employees (2016: 402). Matters of a serious nature were investigated at a senior and independent level, with 59 investigations completed during 2017 (2016: 55).
Mitigation priorities for 2018
For our front-line employees, we will extend the values-based training materials already developed to reflect common experiences or particular challenges which come to light from whistleblowing cases, internal grievances or feedback from the global employee-engagement survey conducted in 2017.
For managers, the newly-revised competency framework has helped guide the development of on-line training, which is due to be launched in 2018. The training uses realistic scenarios in which participants are required to make value-based decisions from a range of options in order to achieve the right outcomes. The training will be mandatory, and cascaded to all managers to complete before the end of 2018.
Our reward and recognition schemes will continue to be aligned to the values, to ensure they are promoted in everything we do. A new group-wide scheme will supplement local efforts and enable us to showcase the types of behaviour which exemplify the values and reflect the great work that our employees do.
In a global and diverse security business such as ours, there are risks associated with recruiting, training, engaging, rewarding and managing people, as well as ensuring we retain critical talent to deliver increasingly sophisticated services through our 570,000 employees. Screening and vetting is a particular challenge in some territories which lack supporting infrastructure from the relevant authorities. Any incident where our people fail to meet expectations of customers and other stakeholders could lead to financial and reputational damage to the Group's business. Whilst our controls are robust we still face the risk of an employee not behaving in line with our values.
The Group's mandatory human resource standards cover core requirements for delivering the HR strategy, such as ensuring there are effective organisational structures in place, that employees are screened, inducted and trained to perform their jobs, and that there are appropriate mechanisms in place for managing on-going performance and recognising great performance. During 2017 the annual self-assessment by countries of compliance with our standards was supported by site reviews from local and regional teams, and included in the scope of country internal audit visits.
We review in detail the performance and potential of managers across the Group to help identify development needs and build succession plans. We also deliver regional leadership programmes to nurture talented individuals early in their careers, and help develop them into more senior roles as they move through the organisation. Staff turnover is a key indicator to us of employee satisfaction, and reducing it improves service excellence and reduces recruitment costs. During the year staff turnover reduced from 27.6% in 2016 to 25.3% in 2017 (see page 17).
Mitigation priorities for 2018
We will use the information from our fifth global employee survey to help develop initiatives to enhance standards further and ways in which to ensure the standards are embedded. Compliance with our Core HR Standards will again be self-assessed during 2018 and reviewed by local, regional and group teams as well as tested by internal audit. Direct support will be provided as necessary to enhance compliance with our standards.
The Group operates a number of long-term, complex, high-value contracts with multinational companies, governments or strategic partners. Key risks include; accepting onerous contractual terms; poor mobilisation of contracts; not transitioning effectively from mobilisation to on-going contract management; not delivering contractual requirements; inaccurate billing for complex contracts; ineffective contract-change management; and not managing sub-contractors appropriately.
During 2017 we updated our strict thresholds for the approval of major bids, involving detailed legal review and senior management oversight. For a selection of our most significant contracts in the UK, we perform 360° reviews of all aspects of contract management and performance. We also perform a quarterly financial review of the top 25 and low-margin contracts in each region.
For our large multinational customers, account managers oversee performance of these contracts across relevant countries and have regular updates with customers to ensure we deliver against contractual terms.
Mitigation priorities for 2018
While great improvements have been made in reducing the risk of taking on onerous contracts, as the impact can be significant, we will continue to enhance the quality of the analysis used in the bidding process and ensure that lessons are learned from underperforming contracts. We will also embed into the SalesForce opportunity management tool our updated approval requirements to make compliance and monitoring effective.
LAWS AND REGULATIONS
G4S operates under many complex and diverse regulatory frameworks, some of which have extraterritorial reach and many where regulations change regularly. Risks include: new or changed restrictions on foreign ownership; difficulties obtaining all relevant licences to operate; complying with employment legislation covering a wide range of requirements; complying with often complex and broad ranging local tax regulations; increasing litigation and class actions; bribery and corruption and complying with human rights legislation. Failure to meet the required standards can lead to higher costs from claims and litigation; inability to operate in certain jurisdictions, through either direct ownership or joint ventures; loss of management control; damage to our reputation; and loss of customer confidence.
Our policies and procedures clearly set out the requirement for local management teams to comply with all relevant laws and regulations. Group and regional leadership, together with our Ethics Committees at Group and regional level provide oversight and support our businesses to mitigate the risks. Group legal and regional leadership closely monitor changes in foreign ownership laws and make appropriate plans to respond. G4S continues to liaise with relevant governments and authorities to influence positively the regulatory environments in which we work.
Mitigation priorities for 2018
We will continue to focus on seeking full compliance with laws and regulations across all jurisdictions we operate in and ensure that concerns are addressed appropriately by local management with support and guidance from Group and regional leaders.
Our focus is on investing in the development and marketing of innovative and integrated products and services and improving business efficiency to strengthen service excellence and support improved margins over time. There are risks with adopting such a strategy: that we fail to create higher-value solutions that differentiate us from local commoditised competitors; that we fail to deliver our core services effectively and consistently; that we lose contracts or growth opportunities through price competition and market changes; that we fail to enter target markets successfully; that we become over-reliant on large customers; and that our business transformation initiatives do not deliver as expected.
We continue to focus on delivering excellent service through the best-practice service delivery guidelines in place for both Secure Solutions and Cash Solutions service lines. Our newly developed information systems supporting the end-to-end order-to-cash process in our Secure Solutions service line, including finance, human resources and operational delivery, was launched in Ireland in 2017. We use our centres of excellence to develop innovative solutions for customers, particularly in electronic security and CASH360 in Cash Solutions. We leverage our global network to offer integrated solutions internationally and our global accounts programme supports and promotes our multinational accounts initiatives. Our consistent focus on delivering excellent service to customers has led to an increase in our Net Promoter Scores.
We are able to mitigate local reduction in growth opportunities through the diversity of industries and markets we serve, and by leveraging our portfolio of products to offer alternative cost-efficient solutions. All our product development initiatives and business transformation projects are closely monitored by Group and regional teams, with appropriate challenge and approval to maximise the opportunity and minimise the risks.
Mitigation priorities for 2018
In 2018, we will focus our investments in innovative product development and in transforming the efficiency of our business and the capabilities of our people and systems. Customer satisfaction reviews will guide how we deliver integrated solutions to existing and potential customers across all businesses. This would include: proprietary security systems, video and intelligent camera systems, video management systems, global security intelligence systems and software tools including incident-management systems such as RISK360 in our Secure Solutions business. For Cash Solutions, development would include: retail solutions, CASH360, Deposita cash-recycling systems and solutions for our smaller retailers. Our new information systems for the Secure Solutions service line will be implemented in the UK in 2018, with plans to expand into other countries once proven to deliver as expected. Focused business transformation projects will also be implemented to drive further efficiency and improve margins. Oversight, challenge and approval of detailed business cases for all such initiatives will be enforced by Group and regional teams.
We operate in many countries across the world, with wide-ranging government and political structures, different cultures with varying degrees of compliance with laws and human rights, particularly within conflict and post-conflict zones. The risk factors include: political volatility, including the outcome of elections and referendums affecting trade rules and regulations and changes in policies towards business, revolution, terrorism, military intervention, mistreatment of migrant workers and employees working for our suppliers. These risks impact us in many ways: the health and safety of our staff and customers; the continued operation of our businesses; and the ability to secure our assets and recover our profits.
We collaborate with our local partners; conduct early risk assessments before and during security assignments; develop robust operating procedures; and work closely with our local and global customers in managing the risks of operating in such environments. We have clear standards on human rights which all businesses must comply with. Those based in high-risk countries self assess their compliance with these standards annually, with this assessment reviewed by Group and checked by internal audit. We have a mandatory supplier code of conduct which includes anti-bribery and modern slavery requirements. Our G4S Risk Management business has particular expertise in providing secure solutions in very high risk, low infrastructure environments.
Mitigation priorities for 2018
In markets where potential government policy or trade agreements may have a significant impact on our ability to trade we will continue to engage with national and international governments to promote the benefits that G4S brings to a market and an economy, to ensure that we minimise the impact of any trade restrictions or trade policy. We will increase the number of countries that complete human rights control self-assessments and carry out human rights risk assessments in all key business areas. We will also work to build awareness of human rights responsibilities across the business and our partners and increase engagement with suppliers to ensure they are also complying with human rights.
Increased regulations and sanctions relating to the potential failure to secure sensitive and confidential data, which we are entrusted with by customers, staff, suppliers and other stakeholders, have increased our risks in this area. Like all organisations, we face cyber attacks from a variety of sources which, if successful, could result in censure and fines by national governments; loss of confidence in the G4S brand and specific loss of trust by customers, especially those in government and financial sectors. Additionally, we face the risk of disruption to service delivery from system failures, incomplete backup routines, inadequate business continuity and disaster recovery plans.
We have "defence-in-depth" technologies (i.e. multiple layers of defence) in key systems to protect business information entrusted to us. During 2017 we brought our IT function under direct management of the Group team, to enhance the way our systems are supported and run. This will ensure policies and best practice are applied consistently across all operating businesses. In late 2017 we commenced a programme of investment in Cyber defence tools, to improve the levels of compliance for managing these risks across the many systems and infrastructures that exist globally. We are also introducing additional standards and guidance to ensure compliance with General Data Protection Regulation (GDPR) across the UK and Europe.
Mitigation priorities for 2018
We will continue to strengthen the effective performance of our IT processes through the centrally-managed IT structure, and complete the implementation of our new Cyber Tools programme to increase the security of our IT systems and infrastructure, including managed cyber security products, centralised infrastructure management tools and cyber vulnerability assessments.
We provide a wide range of cash-management services, including cash processing, fit-sorting of notes for recycling, holding funds on behalf of customers, secure storage, a range of ATM services, as well as transporting high values of cash and valuables including international shipments and fully-outsourced cash-management solutions such as CASH360. Our cash business is at risk of external attacks, internal theft, poor cash reconciliations and weak management supervision, which could lead to loss of profit, increased cost of insurance and health and safety considerations for our staff and the public.
During 2017 we refined the standards for Reconciliation and Operational Cash Controls and continued through an 'e-learning academy' and direct support, to ensure wide-spread awareness and effective performance of these controls. Self assessments against these standards are performed twice a year by each branch and head office and compliance is supported and monitored by regional teams and through internal audit. We also have clearly-defined standards for physical cash security for our employees, vehicles and processing centres. The Group and regional cash security teams are responsible for monitoring compliance with these through self-assessments performed by branches and visits to country; for monitoring attacks and other cash losses; and for communicating lessons learned. Innovative security-defence products such as cash-box tracking, vehicle protection foam and protective boxes are used in a number of businesses.
Mitigation priorities for 2018
Our new Global Cash Solutions division will give additional focus to drive improvement in the effective performance of physical security and cash reconciliations throughout our cash businesses, to reduce both the number and value of losses.
Related party transactions (note 40 to the consolidated financial statements, page 185)
Transactions and balances with joint ventures
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. All transactions with related parties are entered into in the normal course of business.
Transactions with joint ventures included revenue recorded of £56m (2016: £49m) and purchases recorded of £6m (2016: £nil). Amounts due from related parties include £5m (2016: £8m) from joint ventures. Amounts due to related parties include £2m (2016: £nil) to joint ventures.
No expense (2016: £nil) has been recognised in the year for impairment in respect of amounts owed by related parties.
The Group has a legal interest in a number of joint ventures and joint arrangements, where the economic interest was divested by the Global Solutions Group prior to its acquisition by G4S plc in 2008. Transactions with these entities during the year comprised
| 2017 |
| 2016 |
|White Horse Education Partnership Limited||3||3|
|Integrated Accommodation Services plc||46||54|
|Fazakerley Prison Services Limited||39||34|
|Onley Prison Services Limited||17||16|
|UK Court Services (Manchester) Limited||2||2|
|East London Lift Company Limited||1||1|
The Group had outstanding balances of £11m due from these entities as at 31 December 2017 (2016: £12m).
Transactions with post-employment benefit schemes
Details of transactions with the Group's post-employment benefit schemes are provided in note 32. Unpaid contributions owed to schemes amounted to £0.3m at 31 December 2017 (31 December 2016: £0.5m).
Transactions with other related parties
In the normal course of the Group's business the Group provides services to and receives services from certain non-controlling interests on an arm's length basis.
Remuneration of key management personnel
The Group's key management personnel are deemed to be the non-executive directors and those individuals, including the executive directors, whose remuneration is determined by the Remuneration Committee. Their remuneration is set out below. Further information about the remuneration of individual directors included within key management personnel is provided in the audited part of the Directors' Remuneration Report on pages 93 to 115.
| 2017 |
| 2016 |
|Short-term employee benefits||11,112,484||11,463,651|
|Other long-term benefits||27,833||28,728|
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 119 of the Company's 2017 Integrated Report and Accounts. Responsibility is for the full 2017 Integrated Report and Accounts, not the extracted information presented in this announcement and in the preliminary final results announcement.
"Statement of directors' responsibilities in respect of the annual report and the financial statements
The directors are responsible for preparing the annual report and the Group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
- for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a strategic report, Directors' report, Directors' remuneration report and Corporate governance statement that comply with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' responsibility statement
Each of the directors, the names of whom are set out on pages 68 and 69 of this Integrated Report and Accounts, confirm that, to the best of his or her knowledge:
- the financial statements in this Integrated Report and Accounts have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the company and the Group; and
- the management report required by DTR4.1.8R (contained in the strategic report and the Directors' report) includes a fair review of the development and performance of the business and the position of the company and the Group taken as a whole, together with a description of the principal risks and uncertainties they face.
The strategic report from the inside front cover to page 65 includes information on the Group structure, the performance of the business and the principal risks and uncertainties it faces. The financial statements on pages 132 to 210 include information on the Group and the company's financial results, financial outlook, cash flow and net debt and balance sheet positions. Notes 22, 26, 27, 30 and 31 to the consolidated financial statements include information on the Group's investments, cash and cash equivalents, borrowings, derivatives, financial risk management objectives, hedging policies and exposure to interest, foreign exchange, credit, liquidity and market risks.
Pages 132 to 201 contain information on the performance of the Group, its financial position, cash flows, net debt position and borrowing facilities. Further information, including financial risk management policies, exposures to market and credit risk and hedging activities, is given in note 31 to the financial statements. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors consider it appropriate to adopt the going concern basis in preparing the financial statements.
Directors are also required to provide a broader assessment of viability over a longer period, which can be found on page 92 of the Integrated Report and Accounts.
The directors consider that the Integrated Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance and position, business model and strategy.
The statement of directors' responsibilities and the strategic report are approved by a duly authorised committee of the board of directors on 8 March 2018 and signed on its behalf by Tim Weller, Chief Financial Officer."
Notes to Editors:
G4S is the leading global, integrated security company, specialising in the provision of security services and solutions to customers. Our mission is to create material, sustainable value for our customers and shareholders by being the supply partner of choice in all of our markets.
G4S is quoted on the London Stock Exchange and has a secondary stock exchange listing in Copenhagen. G4S is active in around 90 countries and has around 570,000 employees. For more information on G4S, visit www.g4s.com.