Market

G4S plc
Investor Relations Presentation
September 2011
Legal Disclaimer
Certain statements in this document are forward-looking statements. These
forward-looking statements speak only as at the date of this document. These
statements concern, or may affect, future matters and include matters that are
not facts. Such statements are based on current expectations and beliefs and, by
their nature, are subject to a number of known and unknown risks and
uncertainties that could cause actual results and outcomes to differ materially
from any expected future results or performance expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements. The information and opinions expressed in
this document are subject to change without notice and neither the Company
nor any other person assumes any responsibility or obligation to update publicly
or review any of the forward-looking statements contained within this document,
regardless of whether those statements are affected as a result of new
information, future events or otherwise.
2
Contents









H1 2011 results highlights
Investor proposition
Global security market
Market trends and characteristics
Economic sensitivities
Organic growth strategy
Acquisition strategy
Financials
Summary
3
H1 2011 results
H1 2011 Results Highlights
* At constant exchange rates

Group turnover* up 5% to £3,761 million

Organic turnover* growth of 5%

New Markets organic turnover* growth of 9%

PBITA* up 3% to £239 million

PBITA margin* of 6.4%

Operating cash flow generation 60% of PBITA

Expect to achieve FY target of 85%

Adjusted EPS increased by 8% to 10.0 pence

Interim dividend up 8% to 3.42 pence per share
5
Organic Turnover Growth
6 months ended 30 June 2011
Europe
North
America
Developed
Markets
New
Markets
Total
Secure
Solutions
4%
4%
4%
9%
6%
Cash
Solutions
-2%
-4%
-2%
8%
1%
Total
3%
4%
3%
9%
5%
6
Investor Proposition
G4S Investor Proposition
Integrated security
 Key differentiator for the group
 Bring together project management, risk consultancy, physical security, intelligent
systems and security personnel to solve security challenges for customers
Unrivalled cash
solutions expertise
 Cash cycle management is a core competency
 Ability to drive substantial efficiencies for customers
 Achieving maximum financial return for our customers
 Substantial opportunity for continued outsourcing
 Market leading growth and margins for G4S
Government
partnerships
Strong “New
Markets” positions




Substantial government contract base
Public sector spending continuing under pressure
Strategic partnerships
Strong, long-term source of future growth
 Unrivalled global presence and experience of less developed markets
 29% of revenue and 36% of H1 2011 PBITA
 Well positioned for structural growth opportunities
 Ability to drive development forward in industry sectors
 Increasing outsourcing trends
8
Delivering Shareholder Value
9
Global Security Market
Global Market Size and Growth Rates
Strong structural growth B-B & B-G Markets
Security market revenue by region (US$ bn)
243
Recession Effects spread across
2004 -09 period thus damping
this 5 year CAGR to 6.8% and
2009 – 14 period, thus giving
second 5 year CAGR to 5.3%
Estimated annual growth 2009 to 2014 by region
GDP Growth
11.6%
10.1%
162
10.5%
125
90
9.7%
3.3%
4.4%
Source: Freedonia 2011, Company estimates, IMF April 2011
11
Weighted average growth rates 2009-2014
Strong exposure to high growth developing markets
G4S % Revenue 2010
Market Growth
GDP Growth
Eastern Europe
5%
12.0%
11.6%
Africa/Middle East
13%
8.0%
10.1%
Latin America
6%
10.0%
10.5%
Asia
10%
10.5%
9.7%
Western Europe
42%
4.5%
3.3%
North America
24%
5.0%
4.4%
G4S – Weighted Average
6.5%
6.0%
Source: Freedonia 2011, Company estimates, IMF April 2011
12
G4S Revenue from New Markets
Proportion of revenues more than doubled to 29%
2,500
10.0%
2,000
9.0%
1,500
8.0%
1,000
7.0%
500
6.0%
13%
16%
18%
22%
24%
26%
Revenue
Margin
% of group revenues
29%
0
Margin
Revenue (£m)
New Markets Revenues/PBITA Margin 2004-2010
5.0%
2004
2005
2006
2007
2008
2009
2010
13
Global Security
Rise of New Markets from 33% to 48% of global market
14
Global Outsourced Security Market v G4S Customer Split
Opportunity in CNI
2010 Market sector split
Retail
7%
Industrial
21%
2010 G4S customer split
Financial
Institutions
14%
Government
20%
Commercial
13%
CNI : Ports,
Airports/Rail
10%
CNI : Energy/
Utilities
15%
Sources : Freedonia, Frost & Sullivan, Turner & Townsend, G4S analysis
15
Global Market by Segment & Market Shares
Fragmented markets except Cash Solutions
The £90bn global b2b security market – by segment and market share (2010)
By segment
By global market share
Brinks
2%
Prosegur
2%
UTC/GE
6%
Secom
2%
Serco
Civil
2%
Tyco/ADT
6%
Securitas
6%
G4S
8%
Others
66%
Security market segments – global market shares (2010)
Manned Security
Security Systems
Cash Solutions
Source: Market data & G4S estimates
16
G4S Market Overlap
Integrated security solutions - no direct peer
c.10%
c.25%
c.7%
c.10%
c.10%
Cash Solutions:
Secure Solutions:
Cash Solutions:
Government:
Secure Solutions:
Secure Solutions:
• UK
• Europe
• UK
• US
• Europe
• Canada
• Far East
• Some of Europe
• UK
• Australia
• UK
• S. Europe
• Asia
•UK
c.10%*
* 16% including Government
Source: Market data & G4S estimates
17
Market Trends and
Characteristics
Key Market Trends
Market
Customer
Product/Service
Industry Consolidation
Facilities Management
(some markets)
Innovative Technology
– differentiator
Rise of New Markets to
c.50% of market
Balancing customer
economic and security
needs
Risk Management and
Consultancy a
differentiator
Regulation improves
standards and benefits
high quality providers
Growth of international
contracts
Global Consistency
important
Government
Outsourcing
19
Key Market Trends
H1 2011 Evidence
Market
Industry
Consolidation
 Expect to spend around £200m per year
 Strong pipeline of M&A opportunities
Rise of New Markets
to c.50% of market
 H1 organic growth of 9%
 29% of group revenues and 36% of operating profits
Regulation improves
standards and
benefits high quality
providers
 Regulatory changes driving growth in key
strategic sectors such as ports, maritime and
aviation
Government
Outsourcing





UK prisons (8 prisons to be market tested and one re-bid)
Short-listed for Lincolnshire Police contract
Bid submitted for Wiri PPP prison in New Zealand
Prime bidder for the Alexandria hospital PPP in Egypt
Good pipeline of EM pilots and opportunities
20
Key Market Trends
H1 2011 Evidence
Customer
Facilities
Management (some
markets)
Balancing customer
economic and
security needs
Growth of
international
contracts
 Increasing demand for broader range of FM services in
some markets such as the UK and Saudi Arabia
 Good M&A pipeline of FM companies in New Markets
 Continually re-engineering customer requirements
 £67m pa new contracts in H1 mainly out of US/UK
 £180m pipeline of opportunities – should win „our fair share‟
 Momentum of International Account development increasing
21
Key Market Trends
H1 2011 Evidence
Product/Service
Innovative
Technology/Approach
- differentiator
 Work Programme in UK
 Proprietary “Symmetry” products increase penetration of US
Government
 Incident management driving new sales with large US co‟s
Risk Management
and Consultancy a
differentiator
 Khalifa Port, UAE transition consultancy plan
 BP contract in Iraq
 Olympics contract
Global consistency
important
 CATSA contract - an example of G4S knowledge and
expertise in global aviation
 Customer demands for consistency increasing – especially
on international accounts
 Implemented global incident management system for all of
BofA/ML
22
Market Characteristics
23
Market Characteristics
Government
Long Term Growth Drivers
Key Characteristics
 Above group average margins
 Significant G4S expertise - differentiation
 Consolidated markets
 Flexible cost base





Market Participants







Serco
Capita
VT/Babcock
Kalyx
GEO
Reliance
AKAL







CRG
XE
Triple Canopy
Dyncorp
Olive
Aegis
IAP Worldwide Services
Focus on security
Propensity to outsource
Opportunities for variation/extensions
Contracts for multiple Government
agencies
 Military security outsourcing
 Care and justice outsourcing
 Additional services/cross selling
Double digit market growth
Defensive Qualities
 Long term contracts
 Price and cost indexation
24
UK Market Opportunity
Total Contract Value (for contracts >£3m)
Government
92%
YJB, 75.0
Commercial
8%
DWP, 300.0
SPS, 16.5
Close
Protection ,
20.1
Department of
Health, 903.5
UKBA, 234.0
Government
OSE, 38.4
Lesiure, 6.9
HMCS/Ministry
of Justice, 442.0
Police , 298.6
Industries,
19.2
Transport,
120.9
Oil & gas,
54.0
Local
Government,
170.0
Other , 142.3
MOD, 96.0
Retail, 66.0
NOMS (MOJ),
3,455.0
Other , 112.5
Total Contract Value £6.9 billion
(Annual Contract Value £1.0 billion)
Property ,
51.2
Ports &
Airports,
45.3
25
US Government Contracting Trends
Federal
+
•
•
•
•
First generation
outsourcing
Continuing strong
demand for
specialized
services , e.g.
K9s, mine
clearance
Technology and SI
pipeline remains
strong
Good pipeline
visibility
State
-
•
•
•
Reduction in
grants/subsidies
Margin pressure
due to late
generation
outsourcing
Reduction in postconflict manpower
services
+
•
•
•
•
Law enforcement
support services,
fire and public
safety replacement
programs
Multiple purchasing
points, over 3,100
counties, 50 States,
several purchasing
agencies per
County/State
Mining versus
elephant hunting
Economic pressure
creating compelling
opportunities
•
•
•
Federal grants
reducing
Increased trend of
using Private
Sector as stalking
horse to reduce
public sector
costs.
Union
reconstruction
means public
sector introducing
more flexibility to
services
26
Market Characteristics
Cash Solutions
Key Characteristics




Above group average margins
Consolidated markets
Very high G4S competitive expertise
Cost base – fixed in short term
Market Participants





Loomis
Brinks
Prosegur
Garda
Technology companies
Long Term Growth Drivers




Development phases of the cash cycle
Role and strategy of Central Banks
Increased willingness to outsource
Product innovation - End to end ATM
management, CASH360, etc
 High single digit market growth
Defensive Qualities
 Cash usage trends in economic
downturns
 Long term contracts / relationships
 G4S integral part of customer process
27
G4S versus Competition
12 months ended 31 December 2010
Cash Solutions
Global Cash Market Shares – Top Players
£m
Brinks
Loomis
Turnover
1,350
1,994
1,048
Organic Growth
-1.1%
5.4%
-1.0%
19%
42%
15%
PBITA
149
144
94
8%
PBITA Margin
11.0%
7.2%
12%
8.9%
4%
Brinks
G4S
Loomis
Prosegur
Garda
Others
*Brinks: „Non-GAAP results‟
31st December exchange rates used: 1 GBP = SEK 10.53; US$1.57
28
Value of GBP & Euro notes in circulation
CAGR +14.6%
(€) Millions
(£) Millions
CAGR +7.6%
Source: Bank of England
Source: European Central Bank
29
Development of a Cash market
Product revenues - UK
Other
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
30
G4S Cash Solutions
Global Opportunity
Increasing complexity
Fully outsourced solutions
1
9
Partial FI outsource and retail solution
2
6
32
ATM Maintenance
2
1
18
ATM Replenishment
4
10
43
Counting
5
12
44
Secure transport
5
13
52
Market position
Depicts countries with G4S Cash Solutions
3
2
1
31
Market Characteristics
New Markets
Key Characteristics
 Above group average margins
 Very high G4S competitive expertise
 Fully flexible cost base
Market Participants
 No significant international competition
Long Term Growth Drivers
 Outsourcing in its infancy
 Opportunities from infrastructure
growth
 Multi-national customers
 Double digit market growth
Defensive Qualities
 G4S brand and reputation
 Multi-service approach
32
Strategy Model
New Markets
Operate
Secure courier
ATM replen & flm
Note & Coin Processing
Cash-in-transit
Monitoring
Response & Patrol
Security Systems
Manned Security
Widening
Services into
Multi-Service
Security &
Safety Provider
Deliver fully outsourced solutions:
 Output based contracts
 Ability to share in gains
Travel Risk Managemt
Manage
Facilities Management
Increasing Customer Partnership
Strategic Goals
Enhancement of core services with supervision
& IT:
 Delivery of core services
Deliver across all services according to market need, in a phased and evolutionary
implementation
33
Market Characteristics
UK & North America Secure Solutions
Key Characteristics




Growth Drivers
Margins below group average
Fragmented market
High G4S competitive expertise
Fully flexible cost base
Nationally let contracts
Outsourcing potential
Approx 95% customer retention rates
Annual contracts – some retained 20yrs+
Integrated security
Focus on high growth segments
Market growth – mid single digit







Market Participants
UK
 Reliance
 Mitie
 Securitas
 Small local players
Defensive Qualities
US
 Securitas
 Allied Barton
 Guardsmark
 US Security
Associates




Easing in labour market
Low exposure to systems
High customer retention
Scale and integrated offering
34
Strategy Model
Developed Markets
Increasing Customer Partnership
Strategic Goals
Manage
Deliver fully outsourced solutions:
 Output based contracts
 Ability to share in gains
Analysis &
Design
Provide expertise:
 Market segmentation/specialisation
 Risk assessment & consultancy
 Safety & environment consultancy
 Solutions & bid design capability
Operate
Enhancement of core services with supervision
& IT:
 Delivery of core services
Deliver across all services according to market need, in a phased and evolutionary
implementation
35
Market Characteristics
Continental Europe Secure Solutions
Key Characteristics
Margins below group average
 Neutral G4S competitive expertise
 Cost base flexible
 National collective bargaining
 Security systems business = 30% of revenues
 Very consolidated markets

Long Term Growth Drivers







Nationally let contracts
Outsourcing potential
Approx 95% customer retention rates
Annual contracts – some retained 20yrs+
Integrated security
Focus on high growth segments
Low single digit market growth
Market Participants




Securitas
Tyco
Niscayah
Local competitors
Defensive Qualities


Consolidated markets
Regulation
36
G4S Continental Europe
Focus on growth





Organic
Customer retention/implement total solutions
Acquisitions
New countries via international accounts
Southern & Eastern Europe (= developing
market)
37
G4S Europe – recent wins
38
Growth opportunities
 Care and Justice/Government outsourcing
Recent wins:
Cyprus asylum accommodation
Israel police training academy
Belgium European Commission
Sweden Parliament Administration building
Slovenia US embassy
 Cash Solutions
 Secure Solutions
 Eastern Europe



Baltics - Strong GDP growth forecast for 2011 (3% at constant prices) after
decline in 2009 and stabilisation in 2010
Romanian market remains tough
Kazakhstan
39
Economic sensitivities
Analysis of G4S organic growth vs. IMF GDP
G4S Qtr on Qtr Organic Growth vs IMF GDP & Inflation
12.0
10.0
8.0
6.0
% Change
4.0
2.0
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
(2.0)
(4.0)
(6.0)
G4S Organic Growth
IMF - G4S Territories GDP Growth + Inflation
IMF - G4S Territories GDP Growth
41
Analysis of G4S Qtr on Qtr Organic Growth
vs. IMF GDP Growth + 9 months
42
Cash Solutions - Developed Markets
Organic Growth vs. Weighted Average Base Rate %
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Q1
2009
Q2
2009
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
-2.0%
-4.0%
-6.0%
Wt Ave Base Rate %
Organic Growth %
43
Economic Sensitivities of G4S
GDP/inflation
 Will deliver growth well above nominal GDP due to trends
towards outsourcing and increasing global security requirements
 All business segments benefit from an inflationary environment
 Base Rates below 2.5% can result in cash services reductions
Interest Rates
 Economics of outsourcing improve at higher interest rates
 Short-term margin pressure
Government
Contract
fundamentals
 Budget constraints should accelerate long-term outsourcing
opportunity
 Majority of contracts include price escalators or discussion
clauses
 Wage inflation helps drive organic growth
44
Organic Growth Strategy
G4S Business Development Model
Three Categories of Sales – All are Vital
International or large national accts
- CNI, Federal Gov, Large FI’s
Low
No of
accounts
Medium
No of
Accounts
(00’s)
Bespoke Solution
Outsourcer/Partner
High value
Accounts
Complexity High
Long Sales Cycle (6 month +)
Need for Specialists &
Country CEO involvement
Regional Accounts or
Non Complex international
or nationals accounts
- Retailers
Configured Service
Bundled/Outsourcer
Large number of
Accounts (000’s)
Mid Value Accts
Tender driven sales
cycle
Need for
Country Execs
involvement
Branch or local Accounts
Branch Accounts
Security a grudge purchase
Low Av
Value
Standard Offer
Commodity/Bundled
46
International Accounts
Driving Organic Growth

Dedicated Central International
Accounts Team since 2006/7

Top 10 International Accounts
 3% group turnover

Areas of Focus
 Financial Institutions
 Telecoms/IT/Technology
 Pharmaceutical/Chemicals
 Multi-national Corporates

Each Region
 Dedicated International
Accounts Head
 Central Co-ordination
Location of Fortune 500
47
Driving Best Practice via People, Technology & Process
“The G4S Way” Themes : About Winning More Often & Bigger
: About keeping & Developing Customers
Best Process – “The G4S Way”
Account Management
Big Bidding
Best People
Sales Leadership Program
New Group Commercial Function :
Technology to Drive Best Practice
- Salesforce
•
•
•
•
Large Bid/No Bid Process
Independent Bid QA Review
Help countries with no bid capability
Big Bid reporting
48
Global Bid Pipeline – Annual Values
Salesforce.com Global Pipeline : £2m + annual contract values

RFP’s
Received
£0.5bn
RFP’s
Awaited
(known
date)
£0.7bn
£2bn + annual contract
value bid pipeline


200 + opportunities


As at 16th May 2011
£2m+ annual value
50 + opportunities

£10m+ annual value
Proposals
Submitted
£0.9bn
49
Global Bid Pipeline – Annual Values
Sector Break-down of Pipeline £2m +
Government, CNI,
and FI sectors have
higher propensity
for high value
opportunities
50
Customer Retention Rate

Analysed Customers with £10m +
turnover per annum




Fiercest Level of Competition
Robust Tendering Processes
Deepest Customer Relationships
2010 £10m + Customer Retention
Rate (notified losses, not in year effect,
includes UK Court services in Q1 2011)


90% (Based on losses to
competitors)
£10m customers predominantly





Government
Financial Institutions
Aviation, Ports & Rail
Energy & Utilities
International Commercial & Industrials
51
Financials
Adjusted EPS and Dividend
2004 - 2010
Pence
25
10
21.6
9
20.2
20
8
7.9
16.7
7
7.18
15
13.3
6
6.43
EPS CAGR + 15.0%
12.1
5
11.2
10
4.96
9.5
4
4.21
3.54
5
DPS CAGR + 19.5%
3
2.71
2
1
0
0
2004
2005
2006
2007
2008
2009
2010
53
Acquiring capability
A key element of strategy delivery
In the last three years we have invested over £800m in acquisitions which
bring c£1bn revenues, c£90m PBITA and support strategy implementation:
Management of
critical infrastructure
& expansion
into new government
sectors and
geographies
GSL
Mar ‘08
RockSteady
Expansion of
major event
security & safety
capability
Security
consultancy,
design & systems
integration
Touchcom
May ‘08
ArmorGroup
Additional skill in
protective security
solutions for
governments and
multinationals.
New specialist
capabilities – mine
action and risk
consulting
Creating additional
cash management
expertise focussed
on central banks
consultancy
Adesta
SMI
Jan ‘09
RONCO
Expansion of
mine action
capability
Bringing additional
expertise in ports
capability, systems
integration and
project management
SecPoint
Market leader
in security systems
in fast-growing
Ghana market
Nov ‘09
All Star
Extending secure
facilities management
expertise in high security
government departments
and government sectors
Risk consulting
and mitigation
Hill & Assoc
Leading
systems
integration
business in
Brazil
Plantech
Jan ‘10
NSSC
Additional
consulting &
specialist
nuclear power
expertise
Investigations
and
Compliance
Cotswold Group
Apr ‘11
Instalarme
Entry into
dynamic
Brazil market –
leading security
systems
business
GML
Electronic
Monitoring
equipment
54
Acquisition Strategy
Invest £200m in 2011
New Markets
Multi-Product Strategy
Market share
building manned
security
Cash Services
Monitoring
Facilities
Services
/Management
Developed Markets
Capability Building
Risk
Consultancy
Systems
Integration
Sector
Specialists
55
Building Returns - ROIC
2005 - 2010


ROIC %
20.0

Focus on niche M&A opportunities to deliver
strategic objectives, with accelerated focus on
New Markets

Acquisition criteria
17.6
18.0
16.5
16.0
16.0
14.4
14.5
Acquisitions
13.3
14.0

ROIC of 12.5% within 3 years for smaller
deals

ROIC of 10% within 3 years for capabilitybuilding/market entry

Achieve ROIC above WACC on larger or
strategic acquisitions within 3 years
12.0
10.0
8.0
6.0
4.0
2010
Continue to monitor larger deals
2009

2008
0.0
2007
Expect to invest up to £200m annually
2006

2005
2.0
56
Financing
At August 2011
Long term funding - maturity profile (£M)
1,500
1,100
1,000
350
500
33
0
2011
2012
2013
62
76
25
2014 2015 2016
Bond
RCF
125
2017
USPP
177
2018
90
46
2019
2020
67
2021
2022
 Effective interest rate of 4.9% (2010: 4.7%)
57
Pensions
6 months ended 30 June 2011

Financial assumptions updated as at June

Calculations subject to short-term volatility

Deficit decreased to £184m from £191m at December 2010

Discount rate of 5.6% used for the UK (5.5% at 31 December 2010)

Additional cash contributions of £19m paid (no P&L implication)

Cessation of future accruals in the UK
58
Summary
Summary
Market
 Economic improvement heading in the right direction
 Positive global security market trends
 G4S uniquely positioned across key growth markets
G4S Strategic Development
 Create global secure solutions group focusing outsourcing of strategic
security and risk processes
 Build on strong New Markets positions via acquisition and organic growth
 Substantial opportunity in China, Brazil, India and Saudi Arabia
 Continue building capability in US and UK markets
Acquisitions - £200m+
 Risk Consulting
 All services (including facilities) in New Markets
Performance
 Reaffirmed key financial objectives to deliver increased organic and EPS
growth
60
Appendix
Diversified Geographic Footprint
62
Diversified Geographic Footprint
63
Integrity
CSR Achievements & Focus for 2011
2010 Achievements
 Implemented a CSR Checklist for assessing acquisitions and major
investments
 Became a founder signatory to a new International Code of Conduct for
private security providers
 Introduced a group-wide simplified ethics code which can be easily
understood by all employees
 CSR benchmarking exercise carried out in April 2010 – evaluation versus
peers and best practice
 Commissioned independent customer survey amongst top 200 customers
2011
 Became a signatory to the UN Global Compact
 Implementing requirements of the Bribery Act
 Developing and implementing approach to Human Rights
64
Q&A
Helen Parris
Director of Investor Relations
G4S plc
helen.parris@g4s.com
ph +44(0) 1293 554423