CEO Review Secure Solutions Cash Solutions Financial Review Our People Corporate Citizenship               Q: How would you summarise the performance of the group in 2008?     A: We had a very strong year in 2008 with organic turnover growth of 9.5%, operating profits up 23%, profit margins maintained at 7% and earnings per share increasing by 26% to 16.7 pence. Those results were driven by good performances across all of our geographic regions, service lines and customer segments. On top of that, we made significant progress on implementing the group strategy and integrated some fairly substantial acquisitions on schedule and in line with the expected costs. I’m really proud of our achievements last year and the fact that the strong performance was widespread – across the whole company – is a credit to everyone who is part of G4S.     Q: What were the most important strategic issues that required the focus of the senior management during that time?     A: In order to make sure that the group is able to deliver the growth strategy and to facilitate succession planning, we had to implement some structural, organisational changes. These will enable us to focus on key customer segments and share best practice across the group. Whilst in our business model, the structure is based primarily on country-level accountability, we had to overlay customer segment and service line expertise to make sure that we are in the right shape to achieve our goals in the future. In order to do that we needed to make sure that the relevant group values, such as teamwork and collaboration, were fully embedded in the organisation for this matrix-style structure to be successful. Embedding the values, creating the right structure and making sure we had the right expertise in the right places, was a challenge, but we know it will benefit the organisation in the long run and it was worth taking the time to get it right.     Q: Which parts of the business were the star-performers in 2008?     A: One of the key aspects of our strategy in 2008 was to acquire capability-building businesses across the group. Seeking the right businesses, completing the deals and integrating the different organisations (culturally and operationally) without negatively impacting the business performance was a key achievement in a number of markets and, in my opinion, is now a core strength of the group. The integration of GSL was primarily in the UK, but also in Australia and South Africa. The acquired ArmorGroup operations spanned around 20 of G4S’s existing markets and also enabled the group to enter four new countries. There were various acquisitions across the African continent which required complex integration management and a number of smaller deals across Europe. Operationally, I would say that Romania was a star performer last year – the business took on an enormous contract start-up in the cash management market, growing from zero to more than 650 operational vehicles in just two years. Mobilising a contract of that size successfully is a great achievement. The cash solutions businesses as a whole deserve a mention – driving superior margins unrivalled in the industry whilst delivering strategic and operational benefits for our cash management customers. Cash management is a core area of expertise within the group and we are proud of our achievements. At the same time our US business has really embraced the group strategy and is now more closely aligned to the G4S culture, brand and ideals. After years of success as a quality manned security organisation, G4S Wackenhut has recently won substantial contracts based on the use of newly developed integrated manpower and technology solutions – significantly transforming the product offer in the US. So overall, we have a lot to be proud of.     Q: Which parts of the business didn’t perform to your expectations in 2008?     A: I wouldn’t say that any businesses didn’t perform to our expectations, but there are a still a handful of countries which are failing to meet our minimum margin targets. They continue to implement business improvement action plans and we are confident that they will soon be brought in line.     Q: What impact has the economic downturn had on the performance of the group in 2008?     A: G4S is not immune from an economic downturn, but it tends not to have a huge impact on our business. We are resilient to economic pressure for a number of reasons. A large proportion of our business is in complex, long term outsourcing contracts (many in the government sector) which are unlikely to be those that come under pressure during difficult periods of the economic cycle. Particularly those contracts in areas such as the justice sector, border control or military support services are not likely to face cuts in times of economic uncertainty. In fact, outsourcing tends to increase in times of difficulty as customers seek greater efficiencies and look for ways to reduce costs. Consumers turn to cash in tough times. It allows them to budget more effectively and avoid unnecessary interest charges which they would pay on a credit card. We do our very best to make sure this demand is catered for efficiently and that the public can get access to their cash where and when they need it – this means that cash needs to move around an economy as efficiently as possible and ATM cash needs to be managed appropriately to cater for the changes in demand. Generally, our broad geographic exposure provides some protection from economic pressure with no over-reliance on a single country or economy. In some countries, where we compete with local competitors which are going out of business as a result of the current state of the economy, we are in a position to pick up additional contracts as customers require confidence in the long-term sustainability of the service and that their security partner can deliver. Of course, we constantly keep our own cost base and the efficiency of the operation under review. As a service business, a large proportion of our investment is in people – in times of economic difficulty it does become easier to recruit good quality people and to retain existing employees for longer. Overall, I would say that whilst there are challenges for us in recessionary times, our business model, international presence and contract base means that we are more resilient that most.     Q: How are you expecting the current economic situation to affect the business in the next two years?     A: Of course, we can’t predict how the global economy will turn out – the likely length and depth of the recession is a major point of debate and views differ greatly. However, for all of the reasons I have already described, I think that we will be able to ride the storm more positively than most. We will focus on building customer relationships and increasing customer partnerships and we are monitoring and managing our debtor base very carefully to make sure that we deal with any issues that arise before they can impact the business.     Q: What was the best decision you made in 2008?     A: The GSL and ArmorGroup acquisitions are probably the highlights – they have helped to transform the organisation in so many ways and add capability and expertise in areas which will really help us develop and drive growth in the future.     Q: What would you have done differently in 2008 with hindsight?     A: There are always ways to improve the business performance, but I can’t really say that there are any major things that we should have done differently. We had a good year and moved forward enormously in terms of building capability and confidence for the future.     Q: What drives growth in your business?     A: The growth drivers differ across our two main service lines. In cash solutions, the primary driver of growth is the maturity of the cash cycle and the role of the central bank. In the most mature markets, the central banks have given responsibility for managing the cash cycle to the commercial banks which, in turn, pass that responsibility onto cash solutions providers such as G4S. In these markets outsourcing of almost the entire cycle is common and provides a way for the banks to focus on their core business and for G4S to apply its expertise to the management of the flow of cash around the economy. We can take responsibility for the entire cycle including cash management, cash forecasting, ATM network management and so on. Our challenge is to encourage less developed markets to move through these phases of development to a fully-outsourced model. The structure of the market is also a key growth driver. In less developed cash markets, the central banks and commercial banks retain a high number of cash processing locations which means the market can be very fragmented with hundreds and sometimes thousands of cash-in-transit providers. In cash management, economies of scale and density of customers are key to providing the most efficient service and to facilitating the outsourcing of non-essential banking services by the banks. G4S expertise and competitive differentiation in the cash management sector also helps us to grow. Within the group, we have some of the world’s most experienced cash management experts with strong track records. We have developed our expertise in this area over a number of years and can demonstrate true benefits to customers looking to outsource their cash management processes whilst needing to feel secure in the knowledge that their business is in safe hands. Underlying all of those major issues is the consumer demand for cash The demise of cash has been predicted for over 25 years and yet it is still very popular with consumers – it is free at the point of use, it is anonymous and it provides the best means of managing a budget, particularly in tough economic environments. Consumers also want access to their cash 24 hours a day, which drives the need for ATM networks to be delivering that convenience to consumers across the world. In secure solutions the key driver is the propensity for government and commercial customers to outsource to the private sector. There are many reasons why this might take place – in the government sector, resources such as the military and police are constantly under pressure to focus on their core role and to outsource any aspects of their operation which are not delivering front line benefits. The private sector has shown that it can be successful in delivering a quality service in these areas and provide cost-savings at the same time. In the non-government sector, the focus is largely on reducing risk and driving quality whilst managing cost so the organisation can focus on its core business – for example, retailers need to focus on selling goods, airlines have to move passengers around the world efficiently and sporting venues need to maximise the experience for their paying audience. Managing the risk aspects of these sectors is the core business and expertise of organisations such as G4S. We focus very hard on increasing customer partnerships across our business and demonstrating the expertise and value that G4S can bring to a customer. This means that we become an integral part of their business and a significant contributor to their business success. Underlying this, there is always the issue of crime and risk. Whilst it is difficult to quantify how increases in crime and risk directly impact security spend, what is apparent is that it is usually accompanied by an increased focus on the associated business issues. Risk management is increasingly a topic for board level discussion and decisions are taken at a higher level within our customer organisations than they would have been ten or maybe even just five years ago. It’s important to us to build relationships at this level. Across all service lines we continue to acquire businesses which contribute to growth. We made a large number of acquisitions in 2008 – some to add scale to the group, but the majority to provide additional capability and expertise to drive outsourcing opportunities. In the future, capability-building acquisitions will continue to be a focus for the group although we will also consider acquisitions which give us access to a particular geography or a market sector which we don’t already have.     Q: What are the biggest risks to that growth being achieved in 2009?     A: No company can ignore the state of the global economy right now. We believe that we have the ability to ride the economic storm and should be well-placed to drive superior growth once global economies get back on track, but with so much uncertainty around, we can’t be complacent about it.     Q: What will be the biggest challenge to the group in 2009?     A: The biggest challenge will be keeping everyone motivated, positive and driving forward in a year of economic stress. We have a great business and really good people who have delivered good results time after time. We need to make sure that we have got the right culture across the organisation and that everyone believes in, and lives up to the group values. We can’t be everywhere supervising everything and we need to trust our people to do what they do best – take the group strategy and culture and make it work for them in their local market.     Q: How is the shape of the business likely to change or develop in the future?     A: We are committed to the multi-service model – it works well for us, particularly in new markets where customer relationships are developed across multiple service lines. Our unique geographic footprint isn’t likely to change fundamentally although we would always consider acquisitions which give us access to markets or sectors where we don’t currently have a presence. We will certainly seek acquisitions which bring additional expertise or capability to the group. We will focus on developing customer partnerships across the board and in key sectors. We would expect our government business to continue to become a larger proportion of group revenues over time.     Q: How would you summarise the mid-term outlook for the business?     A: We achieved very strong results in 2008 and made significant progress in implementing the group strategy, supplemented by some key capability-building acquisitions. Against the backdrop of economic uncertainty in 2009, we continue to focus on building customer relationships, retaining and growing existing business, winning new business, improving productivity, controlling costs and differentiating G4S with new service lines. So, whilst there are some challenges for our business in recessionary times, we do expect to perform strongly in the year ahead.       Nick Buckles Chief Executive   We continue to focus on building customer relationships, retaining and growing existing business, winning new business, improving productivity, controlling costs and differentiating G4S.     We achieved very strong results in 2008 and made significant progress in implementing the group strategy, supplemented with some key capability-building acquisitions.               Back to top