• G4S plc results for the six months ended 30 June 2019

    Source: Nasdaq GlobeNewswire / 09 Aug 2019 02:00:04   America/New_York

    9 August 2019

    G4S plc
    Results for the six months ended 30 June 2019

    G4S Chief Executive Officer Ashley Almanza commented:

    “In the first half of this year, our improving sales performance in both Secure Solutions and Cash Solutions saw the Group deliver underlying revenue growth of 4.7%. This growth together with new contract wins, supports our medium-term revenue goal of 4-6% per annum.”

    “Our revenue mix continued to improve as our technology-enabled revenues in Secure Solutions grew by 14.8% across the globe and our North American cash technology revenues grew by 33%.”

    “The Group’s half year performance, sales pipeline, revenue momentum and productivity programmes support a positive outlook.”

    “Our separation review is now complete and the Board has approved the separation of Cash Solutions from the Group. As a result, we have set in train plans for the demerger of Cash Solutions in H1 2020. We believe that this will create two strong, focused businesses each with the clear potential to capitalise on market leading positions and to unlock substantial value for customers, shareholders and employees.”

    First half highlights (Underlying resultsa unless otherwise noted):

    • Secure Solutions revenue +4.9% Cash Solutions +3.9%
    • PBITA margin of 6.2% (2018: 6.4%); positive impact of growth offset by new one-off contract mobilisation costs (£4 million in 2019) and one-off bullion contract profit in 2018 of £8 million
    • Operating cash flow conversiona of 88% (2018: 109%); expect FY conversion above 100%
    • Net debt to EBITDAb 2.85x (30 June 2018: 2.73x); FY 2019 expect c.2.7x
    • Interim dividend: 3.59p per share (2018: 3.59p per share)
    • Statutory earnings of £59 million (2018: £101 million) include businesses sold, onerous contracts and exchange rate movements, £36 million restructuring and separation costs and £35 million goodwill impairment relating to Brazilian businesses acquired in 2012

    Group results

     Underlying ResultsaStatutory Resultsd
     In Constant CurrencyActual Rates
     20192018%20192018%
      Restatede  Restatede 
    Revenue£3,747m£3,578m+4.7£3,807m£3,669m+3.8
    Adjusted PBITAb£234m£230m+1.7£234m£224m+4.5
    Adjusted PBITAb margin6.2%6.4% 6.1%6.1% 
    Earningsc£119m£117m+1.7£59m£101m(41.6)
    Earnings Per Sharec7.7p7.6p+1.73.8p6.5p(41.5)
    Operating Cash Flow£206m£247m(16.6)£189m£251m(24.7)

     a Underlying results are Alternative Performance Measures as defined and explained on page 36. They are reconciled to the Group’s statutory results on page 3. The underlying results are presented at constant exchange rates other than operating cash flow which is presented at actual rates in both 2018 and 2019.
     b Adjusted PBITA and net debt to adjusted EBITDA are Alternative Performance Measures as defined and explained on page 37. The Net debt to adjusted EBITDA ratio is calculated as set out on page 39.
     c Earnings is defined as profit attributable to equity shareholders of G4S plc. Underlying earnings and underlying earnings per share (“EPS”) are adjusted to exclude specific and other separately disclosed items, as described on page 37, and are reconciled to statutory earnings and EPS on page 3.
     d See page 22 for the basis of preparation of statutory results.
     e Restated for the adoption of IFRS16 – Leases, see note 3.

    Page 1


    G4S STRATEGY AND INVESTMENT PROPOSITION
    G4S is the world’s leading global security company, providing security and cash services across six continents.

    Our strategy addresses the positive, long-term demand for security services. Our enduring strategic aim is to demonstrate the values and performance that make G4S the company of choice for customers, employees and shareholders. We aim to do this by delivering industry-leading, innovative solutions and outstanding service to our customers, by providing engaging and rewarding work for employees and by generating sustainable growth and returns for our shareholders.

    Separation Review

    On 13 December 2018, the Group announced that it was reviewing options for the separation of its Cash Solutions and Security Solutions businesses. This has been an exhaustive and thorough process covering strategy, legal, tax, commercial, pensions, operational and financial reviews.

    Our separation review is now complete and the Board has approved the separation of Cash Solutions from the business.  As a result, we have set in train plans for a demerger of Cash Solutions in H1 2020.  We believe that this will create two strong, focused businesses each with the clear potential to capitalise on market leading positions and to unlock substantial value for customers, employees and shareholders.  

    Since announcing the separation review in December 2018, we have received a number of unsolicited expressions of interest from third parties to acquire parts or all of the Cash Solutions businesses. The company has actively engaged with these parties and the Board will continue to evaluate proposals for all or parts of the business alongside the implementation of our demerger plans, although no assurance can be provided at this stage that any third party proposals will lead to a transaction.

    In addition to the separation of Cash Solutions, the Group will be managing for value or exiting a number of non-core businesses and implementing programmes to deliver further identified operational efficiencies.  We expect that, over time, these combined actions will provide further financial strength and flexibility to support the attractive growth opportunities in our core businesses.

    In summary, the separation and related corporate actions will create two companies - a Global Secure Solutions business and a Global Cash Solutions business – and enable each business to benefit from:

    • Strategic, commercial and operational focus
    • Simplified operating model with resulting execution focus
    • Efficient organisation structure
    • Financial strength and flexibility
    • Increased investment in Technology, Innovation, Sales and Operations

    Global Secure Solutions business focused on Security and Security Technology

    G4S is a global market leader in security, providing both established and new technology-enabled security solutions across six continents.

    Security is a growing service industry and we believe that G4S has the expertise and global footprint to grow revenues at 4-6% per annum. As a result of our investment in technology we are deriving an increasing proportion of revenues from technology enabled solutions and at the end of June 2019, around 46% (2018: 42%) of our Secure Solutions revenues included technology in the customer service. This creates additional security and efficiency benefits for customers and increases our ability to differentiate G4S’s offering in the security market.

    Cash Solutions business focused on Cash Management and Cash Technology

    G4S Cash Solutions operates in 44 markets across the globe and has leading positions in 41 of these markets. G4S has market leading cash technology solutions with Retail Cash Solutions, Cash360 and Deposita. Our Cash Technology revenues continue to grow strongly and our cash solutions technology is now installed in over 26,000 locations globally, including for some of the world’s largest retailers. The market leading positions we have built in many markets together with the technology we are deploying is helping to improve the efficiency of conventional cash handling and improve the competitiveness of this business.

    Our Cash businesses have established strong credentials in the bank-outsourcing market and we see considerable further potential in this market.

    Outlook

    G4S Group Chief Executive Officer, Ashley Almanza, commented:

    “The Group’s first half performance, sales pipeline, revenue momentum and productivity programmes support a positive outlook. We are now implementing our plans to separate Cash Solutions from the Group and we expect that this separation will deliver material benefits to customers, shareholders and employees.”

    Page 2


    GROUP RESULTS FOR THE PERIOD ENDED 30 JUNE 2019

     Six months ended 30 June 2019 (at 2019 average exchange rates)
    £mUnderlying
    resultsa
    Onerous
    contracts
    Disposed
    businessesc
    Separation and restructuringSpecific
    and other separately disclosed itemsd
    Statutory
    Revenue3,74760-  3,807
    Adjusted PBITAb234--  234
    Net specific and other separately disclosed items-9-(36)(40)(67)
    Profit before tax1759-(36)(40)108
    Tax(46)(2)-72(39)
    Profit after tax1297-(29)(38)69
    Earningse1197-(29)(38)59
    EPSe7.7p0.5p-(1.9)p(2.5)p3.8p
    Operating cash flowf206(1)2(18)-189
      

    Six months ended 30 June 2018 (at 2019 average exchange rates) – restatedg
    £mUnderlying
    resultsa
    Onerous
    contracts
    Disposed
    businessesc
    RestructuringSpecific
    and other separately disclosed itemsd
    Constant currencyh
    Revenue3,5785664  3,698
    Adjusted PBITAb230(1)(2)  227
    Net specific and other separately disclosed items---(13)(4)(17)
    Profit before tax163(2)(2)(13)(4)142
    Tax(39)--34(32)
    Profit after tax124(2)(2)(10)-110
    Earningse117(2)-(10)-105
    EPSe7.6p(0.1)p- (0.6)p- 6.8p
    Operating cash flowf24714-(10)-251
      

    Six months ended 30 June 2018  (at 2018 average exchange rates) - restatedg
    £mUnderlying
    resultsa
    Onerous
    contracts
    Disposed
    businessesc
    RestructuringSpecific
    and other separately disclosed itemsd
    Statutory
    Revenue3,5505663  3,669
    Adjusted PBITAb227(1)(2)  224
    Net specific and other separately disclosed items---(14)(5)(19)
    Profit before tax160(2)(2)(14)(5)137
    Tax(38)--34(31)
    Profit after tax122(2)(2)(11)(1)106
    Earningse115(2)-(11)(1)101
    EPSe7.4p(0.1)p- (0.7)p(0.1)p6.5p
    Operating cash flowf24714-(10)-251

    a Underlying results are Alternative Performance Measures as defined and explained on page 36 and exclude the results of businesses disposed of during the current or prior periods, the effect of onerous contracts and specific and other separately disclosed items.
    b Adjusted PBITA is an Alternative Performance Measure as defined and explained on page 37 and excludes specific and other separately disclosed items.
    c Disposed businesses include the results of all businesses that have been sold or closed by the Group between 1 January 2018 and 30 June 2019 and are excluded from underlying results to present current period and comparative underlying results on a like-for-like basis.
    d Other separately disclosed items include goodwill impairment, net profit/(loss) on disposal/closure of subsidiaries/businesses and acquisition-related amortisation. The associated tax impact is included in the tax charge within “other separately disclosed items”. In addition, tax-specific charges or credits, such as those arising from changes in tax legislation which have a material impact, and which are unrelated to net specific items, are included within the tax charge within "other separately disclosed items". The accounting policy for specific and other separately disclosed items is provided on page 22.
    e Earnings is defined as profit attributable to equity shareholders of G4S plc. Underlying Earnings and Underlying EPS exclude specific and other separately disclosed items as described on page 37 and are reconciled to statutory earnings and statutory EPS above.
    f Operating cash flow is defined on page 37 as net cash flow from operating activities of continuing operations and is stated after pension deficit contributions of
    £26 million (2018: £21 million).  For the six months ended 30 June 2018 it is presented at 2018 average exchange rates. Operating cash flow is reconciled to the Group’s movements in net debt on page 38.
    g Restated for the adoption of IFRS 16 – see note 3.
    h Constant currency amounts show the 2018 statutory results retranslated at 2019 average exchange rates as described on page 36.  Constant currency amounts should not be considered as or used in place of the Group’s statutory results. Constant currency operating cash flow is translated at 2018 average exchange rates.

    Page 3


    BUSINESS REVIEW: UNDERLYING RESULTS
    ALTERNATIVE PERFORMANCE MEASURES

    The narrative in this Business Review discusses the Group’s underlying results, which are alternative performance measures (as described on page 36) and are reconciled to statutory results on page 3. Commentary on the Group’s statutory results is provided on pages 10 to 14. Throughout the Business Review, to aid comparability, 2018 comparative results are presented on a constant currency basis by applying 2019 average exchange rates as described on page 36.

    The Group’s comparative results have been restated for the adoption of IFRS16 – Leases, as set out in note 3, and a reconciliation between the prior period underlying results as previously reported to the prior period underlying results below is provided on page 41.

    At 2019 average exchange ratesRevenue

    2019

    £m
    Revenuea

    2018

    £m
    YoY

    %
    Adjusted

    PBITA

    2019

    £m
    Adjusted

    PBITAa

    2018

    £m
    YoY

    %
    Adjusted

    PBITA

    margin

    2019

    %
    Adjusted

    PBITA

    margina

    2018

    %
    Africa2111948.8%17166.3%8.1%8.2%
    Americas1,3091,2028.9%61593.4%4.7%4.9%
    Asia4534403.0%31296.9%6.8%6.6%
    Europe & Middle East1,2391,2271.0%92875.7%7.4%7.1%
    Secure Solutions3,2123,0634.9%2011915.2%6.3%6.2%
    Cash Solutions5355153.9%6067(10.4%)11.2%13.0%
    Total Group before corporate costs3,7473,5784.7%2612581.2%7.0%7.2%
    Corporate costs   (27)(28)(3.6%)  
    Total Group 3,7473,5784.7%2342301.7%6.2%6.4%

    a As described in the basis of preparation of the Alternative Performance Measures on page 36, underlying results for 2018 have been restated for the adoption of IFRS 16.  A reconciliation between the results as previously reported and the restated results above is included on page 41.

    DIVISONAL PERFORMANCE

    All commentary and figures refer to underlying results in constant currency, unless otherwise stated.

    SECURE SOLUTIONS (86% of Group revenues)

    Overview

    • Security Solutions (79% of group revenues) incorporating risk consulting, on-site, mobile and remote security, technology-enabled monitoring and response, software and systems and integrated security solutions combining some or all of these services
    • Care & Justice services (7% of group revenues) including custody, detention, education, rehabilitation and transportation concentrated in the UK and Australia

    Our Secure Solutions business delivers industry-leading security services in 90 countries around the world. Building on our established security services, we have invested in developing the capabilities to design and deliver security technology, security systems and integrated security solutions that combine people and technology to offer our customers more efficient and valuable security solutions.

    We believe that our growing ability to design and deliver technology-enabled security solutions strengthens our customer-value proposition and provides G4S with the opportunity to increase the longevity and value of existing customer relationships, to win new business and to earn higher margins.

    With growth of 14.8%, in the first half of 2019, 46% (HY 2018: 42%) of our Secure Solutions revenues were derived from technology-enabled security services combining our people with technology. We have established a substantial business selling technology-enabled solutions to larger customers. With success in that segment, we are extending our offering into the medium sized customer market.

    Performance and Outlook

    During the first half of 2019, our Secure Solutions business delivered revenue growth of 4.9%, with particularly strong revenue momentum in Africa and North America, driven by new contract wins as our technology enabled solutions continue to gain traction in our markets. The Adjusted PBITA margin improved 10 basis points, with the positive impact from the changing service mix towards technology-enabled security and consolidation of Middle East businesses being partly offset by increased mobilisation costs and one-off charges in Brazil.

    Africa
    Revenue growth across Africa was 8.8% helped by new contract wins and improvements in contract retention. A number of large new contract wins to provide customised services in the extractive industries sector resulted in higher mobilisation costs and Adjusted PBITA increased 6.3% to £17 million (2018: £16 million) with margins of 8.1% (2018: 8.2%).  

    Page 4

    BUSINESS REVIEW: UNDERLYING RESULTS
    ALTERNATIVE PERFORMANCE MEASURES

    Secure Solutions continued

    Americas
    Revenues increased by 8.9% driven by strong growth in North America (+10.8%) as our risk consulting and technology-enabled security solutions continue to gain traction in the large enterprise market.

    Adjusted PBITA increased by 3.4% after incurring temporarily higher mobilisation costs in the US (related to new contracts) and severance and other one-off costs in Brazil.

    We had significant new contract wins across a broad range of sectors including IT, power, hotels, construction and healthcare and improved contract retention. Our pipeline in these sectors is substantial.

    Asia
    Revenue growth in Asia was 3.0%. We exercised commercial discipline in our bidding and this, together with efficiency gains, contributed to Adjusted PBITA growing by 6.9%.

    Europe & Middle East
    Revenues in Europe were in line with last year as we continued to exercise commercial discipline in our bidding. Revenues grew strongly in our Risk Management business and in the Middle East, following changes to a shareholder agreement, resulting in the consolidation of the revenues of a business previously accounted for as a joint venture. Overall organic revenues for the region were up slightly on the prior period.

    Adjusted PBITA increased 5.7% due to improved revenue mix and a more efficient cost structure. The Adjusted PBITA margin was 7.4% (2018: 7.1%).

    Page 5

    BUSINESS REVIEW: UNDERLYING RESULTS
    ALTERNATIVE PERFORMANCE MEASURES

    CASH SOLUTIONS (14% of group revenues)

    Overview
           

    • Cash Technology services comprises:
      • Cash technology focused on the efficient management of cash, including Retail Cash Solutions, the leading software and service solution for large retail formats in North America
      • Deposita, Cash360 and G4S Pay solutions for medium and small retail formats
      • Bank process automation
    • Conventional cash services including Cash in transit (CIT), cash processing and automated teller machine (ATM) services

    In our Cash Solutions business we provide software, hardware, systems and services that improve the security, control and efficiency of our customers’ cash handling. Whilst cash usage is expected to continue to grow in emerging markets, in developed markets cash volumes are expected to gradually decline. To ensure critical mass and economies of scale, we focus on markets where we have, or can build a number one or number two position in the market. We aim to grow volumes in traditional cash services of cash-in-transit and ATMs organically through cost leadership which enables us to win market share and encourages banks to outsource more services. We are advancing commercial discussions for more bank outsourcing in the UK and other markets.

    We believe that the Group is well positioned to address a substantial and valuable opportunity to extend and grow our new products and services that are currently being adopted by banks and some of the world’s leading retailers. We expect this market to continue to grow strongly and we have market-leading innovative products combining software and service. We are making significant progress with large retailers with what we refer to as our “big box” solution and we are also seeing increasing interest in our mid-size and small box offerings and from banks looking to automate more in branch cash handling. We believe that our Cash Technology services have the potential to generate profits greater than the global profits from our traditional cash business in the medium term.

    At 30 June 2019, we had over 26,000 (December 2018: 23,000) cash automation locations, a 12% increase since the year end, across North America, Europe, Asia Pacific and Africa.

    Performance and Outlook

    Our Cash Solutions business grew revenues by 3.9% overall.

    We posted good growth in Europe (bank outsourcing) and Africa (retail and bank services) and in the Middle East we benefitted from the consolidation of a cash business following favourable revisions to its shareholder agreement. As expected, revenues were lower in the UK as a result of the previously announced ATM and bank branch closures and a one-off benefit in 2018 arising from the early termination of the bullion centre contract.

    Our North American Retail Cash Solutions (RCS) business grew revenues by 33% to £63m (2018: £47m) for the half year as we mobilised new services for existing customers and won new customers in both the large and SME retail sectors. In the US we launched a new offering in the small box segment and we won a bank branch pilot, using our software solution to automate behind-the-counter operations. G4S cash technology and managed services are now delivered to over 26,000 locations around the world, a 12% increase since the year end. This includes 8,800 retail locations across North America, including over 7,700 in large-store formats where G4S has established a market leading position. We believe that the strong value proposition delivered by our unique cash management technology will continue to drive customer interest in North America where we currently have 14 pilot programmes in our pipeline.

    For Cash Solutions as a whole organic growth, excluding the impact of the bullion centre contract, was 4.2%.

    Adjusted PBITA of £60m was £7 million lower than the prior period reflecting the impact of the one-off £8 million benefit in 2018 arising from the early completion of a UK bullion centre contract. Excluding the effect of the bullion centre contract, profit rose by £1 million as the expected impact of UK branch and ATM closures was more than offset by PBITA growth in Africa and RCS.

    CORPORATE COSTS

    Corporate costs comprise the costs of the G4S plc Board and the central costs of running the Group including executive, governance and central support functions.

    Page 6


    BUSINESS REVIEW – GROUP COMMENTARY: UNDERLYING RESULTS
    ALTERNATIVE PERFORMANCE MEASURES

    UNDERLYING RESULTS

    Summary underlying resultsa

     20192018YoY
      Restatedc 
    At 2019 average exchange ratesb£m£m%
    Revenue3,7473,5784.7%
    Adjusted PBITAa2342301.7%
    Adjusted PBITAa margin6.2%6.4% 
    Interest(59)(67)(11.9%)
    Profit before tax1751637.4%
    Tax(46)(39)17.9%
    Profit after tax1291244.0%
    Non-controlling interests(10)(7)42.9%
    Earningsa (profit attributable to equity holders of the parent)1191171.7%
    EPSa,d (p)7.77.61.7%
    Operating cash flowa,b206247(16.6%)

    a   Underlying results, Adjusted PBITA, earnings, EPS and operating cash flow are Alternative Performance Measures as defined and explained on page 36.  They exclude the effect of specific and other separately disclosed items, the results of onerous contracts and the results of businesses sold or closed since 1 January 2018, and are reconciled to the Group’s statutory results on page 3.
    b   2018 comparatives are presented at 2019 average exchange rates as described on page 36, except for operating cash flow which is presented at 2018 average exchange rates.
    c   The 2018 results have been restated for the effect of adopting IFRS 16 – Leases, see note 3.

    Revenue
    The Group’s revenue increased by 4.7% on the prior period. Secure Solutions revenues were 4.9% higher than the prior period, as explained on pages 4 and 5. Cash Solutions revenue increased by 3.9% following a strong performance in North America Retail Cash Solutions offset by challenging market conditions in the UK and parts of Asia.

    Adjusted PBITA
    Adjusted PBITA of £234 million (2018: £230 million) increased by 1.7% compared with the prior period. This reflects Adjusted PBITA growth of £10 million (5.2%) in Secure Solutions partly offset by a £7 million (10.4%) decrease in Adjusted PBITA in Cash Solutions which reflected an £8 million one-off benefit in the first half of 2018 relating to the early completion of a bullion centre contract in the UK.

    Interest
    Net interest payable on net debt decreased to £52 million (2018: £59 million) reflecting the Group’s refinancing programme replacing certain loan notes bearing high interest rates with new loan notes issued at lower interest rates since 30 June 2018 (see page 13 for details) and a reduction in interest on lease liabilities to £12 million (2018: £15 million). Net other finance costs were £2 million (2018: £3 million) and the pension interest charge, related to the unwinding of the discount in relation to long-term pension liabilities, was £5 million (2018: £5 million), resulting in a total net interest cost of £59 million (2018: £67 million).

    Tax

    A tax charge of £46 million (2018: £39 million) was incurred on profit before tax of £175 million (2018: £163 million) which represents an effective tax rate of 26% (2018: 24%). In general, the effective tax rate is a function of a variety of factors, with the most significant being (i) the geographic mix of the Group’s taxable profits and the respective country tax rates, (ii) changes in the value, and recognition of, deferred tax assets and liabilities, (iii) permanent differences such as expenses disallowable for tax purposes, (iv) irrecoverable withholding taxes, (v) the level of provision required for potential tax liabilities not agreed with tax authorities, (vi) the impact of one-off items, and (vii) the overall level of profit against which the preceding items are measured.

    The higher effective tax rate compared with the prior period is primarily driven by the level of provision required for potential liabilities not agreed with tax authorities and the relative amount of non-deductible expenses coupled with the geographic mix of profits.

    Non-controlling interests
    Profit attributable to non-controlling interests was £10 million in 2019, an increase from £7 million in 2018, primarily reflecting the renegotiation in the second half of 2018 of the shareholder agreements for certain businesses in Europe & Middle East and Cash Solutions, increasing our economic interest in and gaining control over those businesses with no incremental investment.

    Earnings
    The Group generated profit attributable to equity holders (‘earnings’) of £119 million (2018: £117 million) for the period ending
    30 June 2019.

    Page 7


    BUSINESS REVIEW – GROUP COMMENTARY: UNDERLYING RESULTS
    ALTERNATIVE PERFORMANCE MEASURES

    Earnings per share
    Earnings per share was 1.7% higher than the prior period at 7.69p (2018: 7.56p), based on the weighted average of 1,547 million (2018: 1,548 million) shares in issuea. A reconciliation of profit for the period to earnings per share is provided below:

    Underlying earnings per share  
     20192018 at constant exchange rates2018 at actual exchange rates
     £m£m£m
    Underlying profit for the period129124122
    Non-controlling interests(10)(7)(7)
    Underlying profit attributable to equity holders of the parent (earnings)119117115
    Average number of sharesa (m) 1,5471,5481,548
    Underlying earnings per share 7.7p7.6p7.4p

    Stated net of the average number of shares held in the Employee Benefit Trust of 5 million (2018: 4 million).

    ONEROUS CONTRACTS

    The Group’s onerous contracts generated revenues of £60 million (2018: £56 million) for the period ended 30 June 2019 and Adjusted PBITA of £nil (2018: £(1) million).

    During the period the improved performance of two UK contracts led to a £9 million (2018: £nil) gain being recognised as a specific item credit in the income statement. Operating cash flow in respect of onerous contracts was £(1) million for the first six months of 2019 (2018: inflow of £14 million) excluding lease payments of £21m (2018: £20m) that, following the Group’s adoption of IFRS 16, are reported outside of operating cash flow.

    DISPOSED BUSINESSES

    In early 2019 the Group sold a parking management business in Estonia which had generated revenue of £nil and Adjusted PBITA of £nil in the six months ended 30 June 2019 (2018: revenue of £3 million and Adjusted PBITA of £1 million).

    Businesses sold during the year ended 31 December 2018 included the Group’s businesses in Hungary and the Philippines, an archiving business in Kenya and the Cash Solutions businesses in the United Arab Emirates, Colombia and Saudi Arabia, and generated revenue of £61 million and Adjusted PBITA of £(3) million in the six months ended 30 June 2018.

    SEPARATION AND RESTRUCTURING

    Charges of £36 million (2018: £13 million) were recorded as separately disclosed items for separation and restructuring programmes in the period ended 30 June 2019, of which £17 million was in respect of the review of separation options for Cash Solutions and £19 million related to the 2018-2020 strategic productivity programme announced in 2017 which is being implemented across the Group, mainly in Europe & Middle East, the Americas and Cash Solutions. In addition, the Group incurred non-strategic reorganisation costs of £5 million (2018: £4 million) which are included within Adjusted PBITA. We expect to invest around a further £6 million in restructuring in the second half of 2019 and estimate that the total cost of the cash separation project will be around £50 million with the majority of that incurred in 2019. 

    Page 8

    BUSINESS REVIEW – GROUP COMMENTARY: UNDERLYING RESULTS
    ALTERNATIVE PERFORMANCE MEASURES

    SPECIFIC AND OTHER SEPARATELY DISCLOSED ITEMS

     2019
    £m
    2018 at constant exchange rates
    £m
    2018 at actual exchange rates
    £m
    Specific items – charges(5)(8)(8)
    Specific items – credits3 1 1
    Net (loss)/profit on disposal/closure of subsidiaries/businesses(1) 5 4
    Goodwill impairment(35) -  -
    Acquisition-related amortisation(2)(2)(2)
    Specific and other separately disclosed items before tax(40)(4)(5)
    Tax credits arising on specific and other separately disclosed items24 4
    Total specific and other separately disclosed items – charge to earnings(38)-(1)

    Specific items 
    The specific items charge of £5 million (2018: £8 million) relates to a review of legacy labour-related claims in Brazil. Specific item charges incurred during the period ended 30 June 2018 of £8 million related to additional provisions in Asia in respect of historical employee gratuities and end-of-service benefits.

    The specific items credit of £3 million (2018: £1 million) relates to the recovery of a legacy claim in North America.

    Net loss on disposal/closure of subsidiaries/businesses
    During the period, the Group recognised a net loss of £1 million (2018: profit of £5 million) reflecting a small profit recognised on the disposal of a parking management business in Estonia offset by costs incurred on business closures and historical disposals. Disposals in the first half of 2018 included the Group’s businesses in Hungary and the Philippines and its archiving business in Kenya.

    Goodwill impairment
    During the period the Group recorded an impairment of goodwill of £35 million (2018: £nil) in respect of Secure Solutions businesses in Brazil that were acquired in 2012 – see note 6 for details.

    Acquisition-related amortisation
    Acquisition-related amortisation of £2 million (2018: £2 million) is in line with the prior period.

    Tax credits arising on specific and other separately disclosed items
    Tax credits arising on specific and other separately disclosed items was £2 million (2018: £4 million).

    CASH FLOW, CAPITAL EXPENDITURE AND PORTFOLIO MANAGEMENT

    The Group generated underlying operating cash flow of £206 million (2018: £247 million) after pension deficit-repair contributions of £26 million (2018: £21 million) during the period. Underlying operating cash flow represents 88% (2018: 109%) of Adjusted PBITA reflecting timing of payments and receipts which we expect to reverse for the full year allowing cash conversion of over 100% for the year. The Group invested £89 million (2018: £113 million) in net capital expenditure including £25 million (2018: £65 million) in leased assets that are capitalised in accordance with IFRS 16. The Group received net proceeds of £7 million (2018: £32 million) from the disposal of businesses and made no significant acquisitions in the period. The relatively high level of new leases in the first six months of 2018 reflected the timing of the renewal of fleet lease vehicles in North America as well as significant new leases of accommodation for guards to service contracts in Europe & Middle East.

    Net cash inflow after investing in the business was £107 million (2018: £168 million). The Group’s net increase in net debt before foreign exchange movements was £129 million (2018: £68 million) after net interest of £81 million (2018: £79 million), tax paid of £47 million (2018: £48 million) and dividends paid of £106 million (2018: £104 million).

    Page 9


    BUSINESS REVIEW – GROUP COMMENTARY:
    STATUTORY RESULTS

    The basis of preparation of the Group’s statutory results is set out on page 22. Comparative figures for statutory results are presented at actual historical exchange rates (i.e. the results for the six months ended 30 June 2018 are presented at average exchange rates for the six months ended 30 June 2018). Prior period results have been restated for the impact of adopting IFRS 16 – Leases, as described in note 3.

    REVIEW OF STATUTORY RESULTS

    Statutory results at actual exchange rates20192018
    Restateda
    YoY

     
     £m£m%
    Revenue3,8073,6693.8%
    Adjusted profit before interest, tax and amortisation (Adjusted PBITA)2342244.5%
    Specific items – charges(5)(8)n/a
    Specific items – credits121n/a
    Restructuring costs(36)(14)n/a
    (Loss)/profit on disposal/closure of subsidiaries/businesses(1)4n/a
    Goodwill impairment(35)-n/a
    Acquisition-related amortisation(2)(2)n/a
    Operating profit167205(18.5 %)
    Interest costs (net)(59)(68)(13.2%)
    Profit before tax108137(21.2%)
    Tax(39)(31)25.8%
    Profit for the period69106(34.9%)
    Non-controlling interests(10)(5)100.0%
    Profit attributable to equity holders of the parent (“statutory earnings”)59101(41.6%)
    EPS (p)3.86.5(41.5%)
    Operating cash flow189251(24.7%)

    a 2018 results have been restated for the effect of adopting IFRS 16 – Leases, see note 3.

    Revenue
    Revenue increased by 3.8% compared with the prior period statutory results. Of the increase, 0.8% (£29 million) was due to movements in average exchange rates. Excluding the effects of movements in exchange rates, revenue increased by 2.9% which included a reduction in revenue of £64 million in respect of businesses disposed during the current period and prior year including the Group’s businesses in Hungary and its Cash Solutions businesses in UAE, Colombia and Saudi Arabia. Revenue from onerous contracts is slightly higher than the prior period at £60 million (2018: £56 million). Excluding the effects of movements in exchange rates, revenue from disposed businesses and onerous contracts, revenue grew by 4.7% at constant exchange rates.

    Adjusted PBITA
    Adjusted PBITA of £234 million (2018: £224 million) was up 4.5%. Of the increase, 1.3% (£3 million) was due to movements in exchange rates. Excluding the effect of movements in exchange rates, Adjusted PBITA increased 3.1%, including a £3 million improvement in Adjusted PBITA from onerous contracts and disposed businesses. Excluding the effect of movements in exchange rates, Adjusted PBITA from disposed businesses and onerous contracts, the Group’s Adjusted PBITA increased by 1.7% compared with the prior period.

    Business performance is discussed in more detail by service line and region on pages 4 to 6.

    Specific items - charges
    The specific items charge of £5 million (2018: £8 million) relates to a review of legacy labour-related claims in Brazil.

    Specific items charges incurred during the period ended 30 June 2018 of £8 million related to additional provisions in Asia in respect of historical employee gratuities.

    Specific items - credits
    The specific items credits of £12 million (2018: £1 million) include £9 million related to the improved performance of two onerous UK contracts and £3 million in respect of the recovery of legacy claims in North America.

    Page 10

    BUSINESS REVIEW – GROUP COMMENTARY:
    STATUTORY RESULTS

    Restructuring costs
    Charges of £36 million (2018: £14 million) were recorded for separation and restructuring programmes during the period ended 30 June 2019, of which £17 million was in respect of the review of separation options for Cash Solutions and £19 million related to the 2018-2020 strategic productivity programme announced in 2017 which is being implemented across the Group, mainly in Europe & Middle East, the Americas and Cash Solutions. In addition, the Group incurred non-strategic reorganisation costs of £5 million (2018: £4 million) which are included within Adjusted PBITA. We expect to invest around a further £6 million in restructuring in the second half of 2019 and estimate that the total cost of the cash separation project will be around £50 million with the majority of that incurred in 2019. 

    Loss on disposal and closure of subsidiaries/businesses
    During the period, the Group recognised a net loss of £1 million (2018: profit of £4 million) reflecting a small profit on the disposal of a parking management business in Estonia offset by costs incurred on business closures and historical disposals. Disposals in the first half of 2018 included the Group’s businesses in Hungary and the Philippines and its archiving business in Kenya.

    Goodwill impairment
    During the period the Group recorded an impairment of goodwill of £35 million (2018: £nil) in respect of Secure Solutions businesses in Brazil that were acquired in 2012 – see note 6 for details.

    Acquisition-related amortisation
    Acquisition-related amortisation of £2 million (2018: £2 million) is in line with the prior period.

    Operating profit
    Operating profit for the period of £167 million (2018: £205 million) was down 18.5% primarily reflecting the 4.5% increase in Adjusted PBITA offset by the Cash Solutions separation costs of £17 million together with the £35 million goodwill impairment charge.

    Net interest costs
    Net interest payable on net debt decreased to £52 million (2018: £60 million) reflecting the Group’s refinancing programme replacing certain loan notes bearing high interest rates with new loan notes issued at lower rates since 30 June 2018 (see page 13 for details) and a reduction in interest on lease liabilities to £12 million (2018: £15 million). Net other finance costs were £2 million (2018: £3 million) and the pension interest charge, related to the unwinding of the discount in relation to long-term pension liabilities, was £5 million (2018: £5 million), resulting in a total net interest cost of £59 million (2018: £68 million).

    Tax
    The statutory tax charge of £39 million (2018: £31 million) for 2019 included a tax charge of £46 million (2018: £38 million) on the Group’s underlying profits, as explained on page 7, a tax charge on onerous contracts of £2 million (2018: £nil), a tax charge of
    £nil in respect of disposed businesses (2018: £nil), a tax credit of £7 million (2018: £3 million) in respect of restructuring costs and a net tax credit of £2 million (2018: £4 million) in respect of specific and other separately disclosed items.

    The Group’s statutory tax charge represented an effective rate of 36% (2018: 23%) on profit before tax of £108 million
    (2018: £137 million). In general, the effective tax rate is a function of a variety of factors, with the most significant being (i) the geographic mix of the Group’s taxable profits and the respective country tax rates, (ii) changes in the value, and recognition of, deferred tax assets and liabilities, (iii) permanent differences such as expenses disallowable for tax purposes, (iv) irrecoverable withholding taxes, (v) the level of provision required for potential tax liabilities not agreed with tax authorities, (vi) the impact of one-off items, and (vii) the overall level of profit against which the preceding items are measured.

    The higher effective tax rate compared with the prior period is primarily driven by: the impact of the Brazil goodwill impairment (see note 6) which has caused the re-assessment of the recoverability of certain deferred tax assets; the level of provision required for potential liabilities not agreed with tax authorities; and the relative amount of non-deductible expenses coupled with the geographic mix of profits.

    Non-controlling interests
    Profit attributable to non-controlling interests was £10 million in 2019, an increase from £5 million recorded in 2018, primarily reflecting the renegotiation in the second half of 2018 of the shareholder agreements for certain businesses in Europe & Middle East and Cash Solutions, increasing our economic interest in and gaining control over those businesses with no incremental investment.

    Profit attributable to equity holders of the parent (“statutory earnings”)
    The Group reported profit for the period attributable to equity holders of the parent (“statutory earnings”) decreased to £59 million
    (2018: £101 million) which primarily reflects the Cash Solutions separation costs and goodwill impairment charge.

    Page 11

    BUSINESS REVIEW – GROUP COMMENTARY:
    STATUTORY RESULTS

    Earnings per share

    Statutory earnings per sharea decreased to 3.8p (2018: 6.5p), based on the weighted average number of shares in issueb of 1,547 million (2018: 1,548 million). A reconciliation of the Group’s statutory profit for the period to EPS is provided below:

     Earnings per share 
     20192018 at constant exchange ratesc,d2018 at actual exchange ratesd
     £m£m£m
    Profit for the period69110106
    Non-controlling interests(10)(5)(5)
    Profit attributable to equity holders of the parent (earnings)59105101
    Average number of sharesb (m) 1,5471,5481,548
    Statutory earnings per sharea3.8p6.8p6.5p

    a Basis of preparation of statutory results is shown on page 22.
    b Stated net of the average number of shares held in the Employee Benefit Trust of 5 million (2018: 4 million).
    c Refer to page 36 for a definition of constant currency results.
    d 2018 results have been restated for the effect of adopting IFRS 16 – Leases, see note 3.

    REVIEW OF THE GROUP’S CONSOLIDATED STATEMENT OF FINANCIAL POSITION
    Significant movements in the consolidated statement of financial position

    Current loan notes reduced to £nil million (31 December 2018: £464 million), reflecting the full repayment of certain loan notes during the period, as explained on page 13. In addition, non-current bank loans increased to £615 million (31 December 2018: £293 million) reflecting the increased draw-down of the RCF in the first half of 2019.

    The following movements in the Group’s consolidated statement of financial position are set out elsewhere in this report, as follows:

    • Cash, cash equivalents and overdrafts are explained below;
    • Retirement benefit obligations are explained in note 14;
    • Provisions are analysed in note 15; and
    • Net debt is analysed in note 16.

    Total equity

    Total equity at 30 June 2019 was £631 million (31 December 2018: £746 million). The main movements during the period were: profit for the period of £69 million (2018: £106 million), other comprehensive loss of £87 million (2018: £8 million), and dividends declared in the period of £108 million (2018: £105 million). The other comprehensive loss of £87 million included a re-measurement loss on deferred retirement benefit schemes of £114 million (2018: £5 million) as explained on page 14 and an exchange gain on translation of foreign operations and changes in fair value of net investment and cash flow hedging financial instruments of £9 million (2018: loss of £4 million).

    REVIEW OF THE GROUP’S CASH FLOW AND FINANCING

    Consolidated statement of cash flow
    Net cash flow from operating activities before tax was £189 million (2018: £251 million). Operating cash flow from discontinued operations of £8 million (2018: £nil) reflects the recovery of long-standing receivables retained on the disposal of a business in 2014. Net cash inflow from operating activities was £150 million (2018: £203 million) reflecting the timing of payments and receipts which we expect to reverse for the full year. Net cash used in investing activities was £59 million (2018: £7 million), including £7 million (2018: £32 million) of net business disposal proceeds. Net cash outflow from financing activities was £159 million (2018: inflow of £202 million) with the difference compared with the prior period being mainly the repayment of borrowings of £460 million (2018: £1 million). Cash, cash equivalents and overdrafts at 30 June 2019 were £600 million (2018: £967 million), a net decrease compared with 31 December 2018 including the impact of exchange rate movements of £73 million (2018: increase of £396 million). The Group’s statutory cash flow is presented in full on page 21.

    Net debt
    Net debt as at 30 June 2019 was £2,121 million (2018: £2,026 million). The Group’s net debt to Adjusted EBITDA ratio increased to 2.85x (2018: 2.73x) primarily reflecting the increase in net debt in the period. The detailed reconciliation of movements in net debt is provided on page 38 and is reconciled to the statutory cash flow on page 39.

    Net debt maturity
    In April 2019, the Group’s credit rating was re-affirmed by Standard & Poor’s as BBB-, with a stable outlook. As at 30 June 2019 the Group had liquidity of £1,030 million (2018: £1,967 million) comprising cash, cash equivalents and bank overdrafts of £600 million (2018: £967 million) and unutilised but committed facilities of £430 million (2018: £1 billion). The Group entered into a £300 million bridge facility which was signed in July 2019 for 12 months with an option to extend for a further six months.

    Page 12

    BUSINESS REVIEW – GROUP COMMENTARY:
    STATUTORY RESULTS

    Net debt maturity (continued)
    During the period, the Group issued $162 million of US private loan notes maturing in May 2026, and $188 million of US private loan notes maturing in May 2029. The Group also repaid £350 million of GBP public bonds bearing interest rates of 7.75%, and US$145 million of US private loan notes bearing interest rates of 5.96%. As at 30 June 2019 the Group had drawn down £320 million from the RCF facility (2018: undrawn). In June 2019 the Group exercised an option to extend the term of £716 million of the £750 million RCF by a further year, taking it to 2024.

    The next debt maturities are the $74.5 million US Public bond due in July 2020 and the $350 million term loan facility due in 2021. The Group has good access to the capital markets and a diverse range of finance providers. Borrowings are principally in pounds sterling, US dollars and euros, reflecting the geographies of significant operational assets and earnings.

    The Group’s main sources of finance and their applicable rates as at 30 June 2019 are set out below:

       Post
    hedging
      Year of redemption and amounts (£m)b
    Debt instrument/
    Year of issue
    Nominal
    amounta
    Issued
    interest
    rate
    average
    interest
    rate
    20202021202220232024202520262029Total
                 
    US PP 2007US$105m6.06%3.38%  83     83
    US PP 2008US$74.5m6.88%6.88%59       59
    US PP 2019US$162m4.90%3.83%      124 124
    US PP 2019US$188m5.12%4.32%       145145
    Public Bond 2016€500m1.50%2.24%   449    449
    Public Bond 2017€500m1.50%3.23%    443   443
    Public Bond 2018€550m1.88%2.78%     484  484
    Term Loan Facility 2018US$350m3.44%3.44% 276      276
    Revolving Credit
    Facility 2018c
    £750m (multi
    currency)
    1.42%1.42%   14306   320
        59276834637494841241452,383

    a   Nominal debt amount, for fair value carrying amount see note 18.
    b   Translated at exchange rates prevailing at 30 June 2019, or hedged exchange rates where applicable.
    c   £716 million of the revolving credit facility matures in August 2024, with the remaining £34 million maturing in August 2023. As at 30 June 2019 the Group had drawn down £320 million from the facility.

    The average cost of the Group’s borrowings and lease liabilities, net of interest hedging, was 4.0% (2018: 4.3%).

    OTHER INFORMATION

    Significant exchange rates applicable to the Group
    The Group derives a significant proportion of its revenue and profits in the following currencies. Closing and average rates for these currencies are shown below:

     30 June 2019
    Closing rates
    Six months to
    30 June 2019
    Average rates
    31 December 2018
    Closing rates
    Year to
    31 December 2018
    Average rates
    £/US$1.26951.29621.27461.3336
    £/€1.11751.14651.11301.1294
    £/South Africa Rand17.906918.354418.328817.5598
    £/India Rupee87.503990.678388.810490.9294
    £/Brazil Real4.86614.96984.94614.8621

    Applying June 2019 closing rates to underlying results for the six months ending to 30 June 2019 would result in an increase in revenue of 2.0% to £3,821 million (for the period ended 30 June 2018: increase of 2.0% to £3,648 million) and an increase in Adjusted PBITA of 1.7% to £238 million (for the period ended 30 June 2018: increase of 1.7% to £234 million).

    Applying June 2019 closing rates to the Group’s statutory results for the six months ending to 30 June 2019 would result in an increase in revenue of 1.9% to £3,881 million (for the period ended 30 June 2018: increase of 2.8% to £3,770 million) and an increase in Adjusted PBITA of 1.7% to £238 million (for the period ended 30 June 2018: increase of 3.1%, to £231 million).

    The movements in average exchange rates led to an increase in statutory revenue of 0.8% and an increase in Adjusted PBITA of 1.3%. The impact of exchange rate movements increased the Group's net debt by £1 million compared with the prior period.

    Page 13


    BUSINESS REVIEW – GROUP COMMENTARY:
    STATUTORY RESULTS

    Dividend
    The Board proposes an interim dividend of 3.59p (2018: 3.59p) per share (DKK 0.2905).

    Pensions                                                     
    The Group’s IAS 19 Revised (2011) Employee Benefits net pension deficit at 30 June 2019 recognised in the consolidated statement of financial position was £463 million (31 December 2018: £364 million) or £385 million (31 December 2018: £302 million) net of applicable tax in the relevant jurisdictions. The increase in the Group’s net pension deficit compared with the position as at 31 December 2018 primarily reflects a significant increase in the net deficit of the UK pension scheme together with a smaller increase in the Group’s unfunded pension schemes.

    The UK scheme’s pension liabilities increased compared with the position as at 31 December 2018 reflecting the decrease in discount rates to 2.25% (31 December 2018: 2.85%) used to compute the scheme obligations following a reduction in corporate bond rates offset by the payment of scheduled deficit-repair contributions of £26 million (2018: £21 million) during the period. The net increase in the pension liabilities was partially offset by a gain recognised on the revaluation of the pension scheme assets.

    The triennial valuation in respect of the UK scheme is underway, during which we expect to agree the future deficit-repair contributions.

    Risk and uncertainties
    A discussion of the Group’s risk assessment and control processes and the principal risks and uncertainties that could affect the business activities or financial results is detailed on pages 64 to 71 of the company’s Integrated Report and Accounts for the financial year ended 31 December 2018, a copy of which is available on the Group’s website at www.g4s.com.

    These risks and uncertainties include, but are not limited to, culture and values, health and safety, people, major contracts, laws and regulations, growth strategy, geo-political, cash losses and information security. The business risks and uncertainties are expected to remain materially the same as outlined in the 2018 Integrated Report and Accounts during the remaining six months of the financial year although the risks associated with the terms of the UK’s exit from the EU continue to evolve.

    Brexit

    The Group operates mainly within national boundaries and is typically subject to security-licencing regulations in each territory, and is relatively well positioned with around 80% of revenues outside the UK and minimal cross-border trading. Brexit may impact the overall macro-economic environment, including foreign exchange rates, and may also have an impact on the availability of labour in the UK.

    The Group will continue to monitor closely developments on the decision to exit the EU as part of its risk management and governance framework.

    Page 14


    G4S plc


    Results for the six months ended 30 June 2019


    Directors’ responsibility statement in respect of the results for the six months ended
    30 June 2019

    We confirm that to the best of our knowledge:

    • the condensed consolidated set of interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the European Union;
    • the half-yearly report includes a fair review of the information required by:
       
      1. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated set of interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
         
      2. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. 

    A list of the directors is available on the company’s website www.g4s.com.

    The responsibility statement is signed on behalf of the Board by:

    Tim Weller           
    Group Chief Financial Officer
    9 August 2019     

    Page 15


    Independent review report to G4S plc


    For the six months ended 30 June 2019


    Report on the condensed consolidated interim financial statements

    Our conclusion
    We have reviewed G4S plc's condensed consolidated interim financial statements (the "interim financial statements") in the 2019 half-year report of G4S plc for the six month period ended 30 June 2019.  Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

    What we have reviewed
    The interim financial statements comprise:

    • the consolidated statement of financial position at 30 June 2019;
    • the consolidated income statement for the period then ended;
    • the consolidated statement of comprehensive income for the period then ended;
    • the consolidated statement of changes in equity for the period then ended;
    • the consolidated statement of cash flows for the period then ended; and
    • the explanatory notes to the interim financial statements.

                 
    The interim financial statements included in the 2019 half-year report have been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

    As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

    Responsibilities for the interim financial statements and the review

    Our responsibilities and those of the directors
    The 2019 half-year report, including the interim financial statements, is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the 2019 half-year report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

    Our responsibility is to express a conclusion on the interim financial statements in the 2019 half-year report based on our review.  This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

    What a review of interim financial statements involves
    We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

    A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

    We have read the other information contained in the 2019 half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

    PricewaterhouseCoopers LLP
    Chartered Accountants
    London
    9 August 2019

    Page 16


    G4S plc
    Consolidated financial statements


    For the six months ended 30 June 2019


    Consolidated income statement (unaudited)

       Six months
    ended
    30 June
     2019
    Six months
     ended
    30 June
     2018
     Restated1
     Year
    ended
    31 Dec
     2018
     Restated1
     Continuing operationsNotes£m£m£m
          
     Revenue53,8073,6697,507
     Operating profit before impairment losses on financial and contract assets, joint ventures, specific items and other separately disclosed items 239223489
     Net impairment losses on financial and contract assets (7)(3)(11)
     Share of post-tax profit from joint ventures 247
     Adjusted profit before interest, tax and amortisation (Adjusted PBITA)5234224485
     Specific items – charges6(5)(8)(32)
     Specific items – credits612111
     Guaranteed minimum pension equalisation charge6-(35)
     California class action settlement6-(100)
     Restructuring costs6(36)(14)(31)
     (Loss)/profit on disposal/closure of subsidiaries/businesses6,7(1)4(15)
     Goodwill impairment6(35)--
     Amortisation of acquisition-related intangible assets6(2)(2)(4)
     Operating profit5,6167205279
     Finance income810816
     Finance expense8(69)(76)(153)
     Profit before tax 108137142
     Tax9(39)(31)(55)
     Profit from continuing operations after tax 6910687
     Profit from discontinued operations --2
     Profit for the period 6910689
          
     Attributable to:    
     Equity holders of the parent 5910181
     Non-controlling interests 1058
     Profit for the period 6910689
          
          
     Earnings per share attributable to equity shareholders of the parent11   
     Basic and diluted – from continuing operations 3.8p6.5p5.1p
     Basic and diluted – from continuing and discontinued operations 3.8p6.5p5.2p
          
     Dividends declared and proposed in respect of the period   
     Interim dividend  555555
     Final dividend  --95
     Total dividend 105555150

    1 Comparative results have been restated for the adoption of IFRS 16 – Leases, see note 3.

    Page 17

    G4S plc
    Consolidated financial statements


    For the six months ended 30 June 2019


    Consolidated statement of comprehensive income (unaudited)

     Six months
    ended
     Six months
    ended
     Year
    ended
     30 June30 June31 Dec
     201920182018
      Restated1Restated1
     £m£m£m
        
    Profit for the period6910689
        
    Other comprehensive income   
    Items that will not be re-classified to profit or loss:   
    Re-measurements on defined retirement benefit schemes(114)(5)38
    Tax on items that will not be re-classified to profit or loss181(6)
     (96)(4)32
    Items that may be re-classified subsequently to profit or loss:   
    Exchange differences on translation of foreign operations and changes in fair value of net investment and cash flow hedging financial instruments9(4)14
    Tax on items that may be reclassified subsequently to profit or loss--(2)
    Other comprehensive (loss)/income, net of tax(87)(8)44
        
    Total comprehensive (loss)/income for the period(18)98133
        
    Attributable to:   
    Equity holders of the parent(28)93124
    Non-controlling interests1059
    Total comprehensive (loss)/income for the period(18)98133

    1 Comparative results have been restated for the adoption of IFRS 16 – Leases, see note 3.

    Page 18

    G4S plc
    Consolidated financial statements


    For the six months ended 30 June 2019


    Consolidated statement of changes in equity (unaudited)

     Attributable to equity holders of the parent  
     ShareShareRetained Other NCITotal
     capitalpremiumearningsreservesTotalreserveEquity
     2019201920192019201920192019
    £m£m£m£m£m£m£m
            
    At 1 January 20191388258(297)37972818746
    Total comprehensive income--(37)9(28)10(18)
    Dividends paid--(95)-(95)(13)(108)
    Transactions with non-controlling interests--(8)-(8)2416
    Own shares awarded--(12)12---
    Own shares purchased---(8)(8)-(8)
    Share-based payments--3-3-3
    At 30 June 2019388258(446)39259239631
            
     Attributable to equity holders of the parent  
     ShareShareRetained Other NCITotal
     capitalpremiumearningsreservesTotalreserveEquity
     2018201820182018201820182018
     £m£m£m£m£m£m£m
            
     At 1 January 2018– reported388258(177)3708394843
     Impact of adoption of IFRS161--(36)-(36)-(36)
     At 1 January 2018 - restated1388258(213)3708034807
    Total comprehensive income/(loss) - restated1--97(4)93598
    Dividends paid--(95)-(95)(10)(105)
    Recycling of cumulative translation adjustments ---(1)(1)-(1)
    Own shares awarded--(9)9---
    Own shares purchased---(7)(7)-(7)
    Share-based payments--4-4-4
    At 30 June 2018 - restated1388258(216)367797(1)796
            
            
     At 1 January 2018– reported388258(177)3708394843
     Impact of adoption of IFRS161--(36)-(36)-(36)
     At 1 January 2018 - restated1388258(213)3708034807
    Total comprehensive income/(loss) - restated1--112121249133
    Dividends paid--(150)-(150)(20)(170)
    Transactions with non-controlling interests--(39)-(39)18(21)
    Consolidation of previously equity-accounted entities--(6)-(6)71
    Recycling of cumulative translation adjustments ---(1)(1)-(1)
    Own shares awarded--(9)9---
    Own shares purchased---(11)(11)-(11)
    Share-based payments--8-8-8
    At 31 December 2018 - restated1388258(297)37972818746

    1 Comparative results have been restated for the adoption of IFRS 16 Leases, see note 3.

    Page 19

    G4S plc
    Consolidated financial statements


    As at 30 June 2019


    Consolidated statement of financial position (unaudited)

      As at
    30 June
    2019
    As at
    30 June
    2018
    As at
    31 Dec
    2018
       Restated1Restated1
     Notes£m£m£m
    ASSETS    
    Non-current assets    
    Goodwill  1,9111,9181,939
    Other acquisition-related intangible assets 10712
    Non-acquisition-related intangible assets 11296100
    Property, plant and equipment  675751713
    Trade and other receivables 1269099
    Investment in joint ventures  8228
    Investments16262223
    Retirement benefit surplus14697375
    Deferred tax assets9274249255
      3,2113,2283,224
    Current assets    
    Inventories 123107113
    Investments16504342
    Trade and other receivables 1,4941,4341,433
    Current tax assets9705464
    Cash and cash equivalents169551,3021,015
    Assets of disposal groups classified as held for sale129-9
      2,7012,9402,676
    Total assets 5,9126,1685,900
         
    LIABILITIES    
    Current liabilities    
    Bank overdrafts16(310)(292)(305)
    Bank loans16(15)(7)(12)
    Loan notes16-(1,118)(464)
    Lease liabilities16(167)(180)(164)
    Trade and other payables (1,193)(1,192)(1,234)
    Current tax liabilities9(51)(61)(57)
    Provisions 15(167)(83)(181)
    Liabilities of disposal groups classified as held for sale12-(1)(1)
      (1,903)(2,934)(2,418)
    Non-current liabilities    
    Bank loans16(615)(5)(293)
    Loan notes16(1,806)(1,506)(1,533)
    Lease liabilities16(231)(314)(296)
    Trade and other payables (47)(33)(38)
    Retirement benefit obligations14(532)(455)(439)
    Provisions 15(139)(117)(131)
    Deferred tax liabilities9(8)(8)(6)
      (3,378)(2,438)(2,736)
    Total liabilities (5,281)(5,372)(5,154)
         
    Net assets 631796746
         
    EQUITY    
    Share capital 388388388
    Share premium 258258258
    Reserves (54)15182
    Equity attributable to equity holders of the parent 592797728
    Non-controlling interests 39(1)18
    Total equity 631796746

    1 The consolidated statements of financial position as at 30 June 2018 and 31 December 2018 have been restated for the effect of IFRS 16, see note 3.

    Page 20

    G4S plc
    Consolidated financial statements


    For the six months ended 30 June 2019


    Consolidated statement of cash flows (unaudited)

      Six months
     ended
    Six months
     ended
    Year
     ended
      30 June30 June31 Dec
      201920182018
       Restated1Restated1
      £m£m £m
         
    Operating profit  167205279
    Adjustments for non-cash and other items (see note 17) 122101389
    Increase in inventory (10)(5)(10)
    Increase in accounts receivable (75)(20)(40)
    Decrease in accounts payable (15)(30)(30)
    Net cash flow from operating activities of continuing operations (see note 17) 189251588
    Net cash flow from operating activities of discontinued operations 8--
    Cash generated by operations 197251588
    Tax paid (47)(48)(98)
    Net cash flow from operating activities 150203490
         
    Investing activities    
    Purchases of non-current assets (66)(52)(114)
    Proceeds on disposal of property, plant and equipment  2412
    Disposal/closure of subsidiaries/businesses 73245
    Cash, cash equivalents and bank overdrafts in disposed entities (1)(2)(16)
    Cash, cash equivalents and bank overdrafts in acquired entities --5
    Acquisition of subsidiaries  (4)(1)(4)
    Interest received 81017
    Sale of investments (10)(3)-
    Cash receipts from leases 335
    Cash flow from equity accounted investments 227
    Net cash used in investing activities (59)(7)(43)
         
    Financing activities    
    Dividends paid to equity shareholders of the parent (95)(95)(150)
    Dividends paid to non-controlling interests (11)(9)(20)
    Purchase of own shares (8)(7)(11)
    Proceeds from new borrowings 594482761
    Repayment of borrowings (460)(1)(658)
    Interest paid2 (89)(89)(143)
    Repayment of lease obligations (86)(79)(167)
    Transactions with non-controlling interests (4)-(1)
    Net cash (outflow)/inflow from financing activities (159)202(389)
         
    Net (decrease)/increase in cash, cash equivalents and bank overdrafts (68)39858
    Cash, cash equivalents and bank overdrafts at the beginning of the period 673571571
    Effect of foreign exchange rate fluctuations on net cash held (5)(2)44
    Cash, cash equivalents and bank overdrafts at the end of the period 600967673

    1 Comparative results have been restated for the adoption of IFRS 16 – Leases, see note 3.
    2 Interest paid for the six months ended 30 June 2018 has been re-presented to include interest paid and received on derivative financial instruments that were previously
      presented separately.

    Page 21


    Notes to the interim financial statements

    1) Basis of preparation and accounting policies

    These condensed consolidated interim financial statements (“the interim financial statements”) comprise the unaudited consolidated results of G4S plc (“the Group”) for the six months ended 30 June 2019. These results and the comparatives for the six months ended 30 June 2018 and for the year ended 31 December 2018 do not comprise statutory accounts and should be read in conjunction with the Integrated Report and Accounts 2018, which is available at www.g4s.com. The Integrated Report and Accounts 2018 was reported on by the company’s auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not contain a reference to any matters to which the auditor drew attention by emphasis of matter without qualifying their report, and (iii) did not contain any statement under section 498 (2) or (3) of the Companies Act 2006. The interim financial statements have been prepared applying accounting policies consistent with those applied by the Group in the Integrated Report and Accounts 2018, except for the adoption of IFRS16 – Leases as described in note 3.

    The financial information in these interim financial statements for the half year to 30 June 2019 has been reviewed but not audited by PricewaterhouseCoopers LLP, the company’s auditor.

    The interim financial statements of the Group presented in this half-yearly results announcement have been prepared in accordance with IAS 34 – Interim Financial Reporting, as adopted by the European Union, and with the Disclosure and Transparency Rules of the Financial Conduct Authority.

    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 condensed consolidated interim financial statements.

    2) Specific items and other separately disclosed items

    The Group’s consolidated income statement and segmental analysis note separately identify results before specific items. Specific items are those that in management’s judgment need to be disclosed separately in arriving at operating profit by virtue of their size, nature or incidence. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.

    All specific items are evaluated and approved by the Group’s Audit Committee prior to being separately disclosed. The Group seeks to be balanced when reporting specific items for both debits and credits, and any reversals of excess provisions previously created as specific items are classified consistently as specific items. Specific items may not be comparable with similarly-titled measures used by other companies.

    In general, provisions recognised for future losses on onerous contracts are charged to the consolidated income statement within Adjusted PBITA. However, where onerous contract charges are significant by virtue of their size, they are separately charged within specific items. Such losses are distinct from “in-year” losses, which are utilised against provisions for onerous contract losses. Releases of onerous contract provisions originally charged as specific items are separately credited within specific items. On adoption of IFRS 16, some of the Group’s onerous contract provisions were replaced with lease liabilities and the associated right of use assets were impaired to the extent that the contracts were onerous (see note 3). Profits arising on such contracts have been recorded within specific items to the extent that the related impairments were previously recorded as specific items.

    In order to provide further clarity in the consolidated income statement, the Group also discloses separately certain restructuring costs, profits or losses on disposal or closure of subsidiaries, costs of major corporate restructuring, acquisition-related amortisation and expenses and goodwill impairments. Restructuring costs that are separately disclosed reflect the Group’s 2018 to 2020 productivity programme announced in 2017. This programme is of a strategic nature and, as such, is monitored and approved by the Group’s Executive Committee.

    Page 22

    Notes to the interim financial statements (continued)

    3) Adoption of new and revised accounting standards and interpretations

    The Group has applied IFRS 16 – Leases.

    IFRS 16 – Leases

    The Group adopted IFRS 16 with effect from 1 January 2019. Its principal effect was to gross up the Group’s balance sheet to recognise additional right of use assets within property, plant and equipment and additional lease liabilities in respect of leases that were previously treated as operating leases. The associated operating lease charge that was previously recorded within operating costs has been removed and replaced with a depreciation charge in respect of the additional assets recognised and an interest charge in respect of the additional lease creditors recognised. 

    The Group applied the standard using the fully retrospective method and has restated its results for comparative periods as if the Group had always applied the new standard. The only exception is in respect of leases (as defined by IFRS 16) that were in existence at 1 January 2018 but did not meet the previous definition of leases where we have continued to apply historical accounting.

    In accordance with IFRS 16, the Group recognises an expense in respect of short-term leases (being those with an initial term of 12 months or less) and leases of low-value items (defined as leases of assets with a cost, when new, of less than £2,500) on a straight line basis over the life of the lease. For all other leases, the Group recognises a right-of-use asset and corresponding liability at the date at which the leased asset is made available for use by the group.

    Lease liabilities are measured at the present value of the future lease payments including fixed payments, in-substance fixed payments, and variable lease payments that are based on an index or a rate, less any lease incentives receivables. The Group applies the practical expedient to include non-lease components in the measurement of lease liabilities. Lease liabilities also take into account amounts payable under residual value guarantees and payments to exercise options to the extent that it is reasonably certain that such payments will be made. The payments are discounted at the rate implicit in the lease or, where that cannot be measured, at an incremental borrowing rate determined based on publicly available data for liabilities with matching start-dates, terms and currencies, adjusted for the country-specific risk of the lessee. No adjustment is made to reflect the nature of the leased assets on the basis that a lender would not make a material adjustment to the borrowing rate to reflect the nature of the underlying assets.

    Lease assets are measured based on the value of the associated lease liability, adjusted for any payments made before inception and initial direct costs.

    Subsequent to initial recognition, the Group records an interest charge in respect of the lease liability. The related right of use asset is amortised over the term of the lease or, if shorter, the Useful Economic Life (UEL) of the leased asset unless it is reasonably certain that the Group will acquire the asset at the end of the lease in which case it is recognised over the asset’s UEL. Lease liabilities are adjusted for changes to the future cash flows due under the lease (for example, changes based on movements in indexes or rates) with a corresponding adjustment typically made to the associated asset. 

    The impact of adopting IFRS 16 on the Group’s consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows is presented in the following tables.

    Consolidated income statement 
     Year ended 31 Dec 2018Six months ended 30 June 2018
    Continuing operationsAs
    reported
    £m
    IFRS16
    £m
    Restated
    £m
    As
    reported
    £m
    IFRS16
    £m
    Restated
    £m
           
    Revenue7,512(5)7,5073,672(3)3,669
    Operating profit2532627919312205
    Finance income16168-8
    Finance expense(126)(27)(153)(62)(14)(76)
    Profit before tax143(1)142139(2)137
    Tax(55) -(55)(31)-(31)
    Profit from continuing operations after tax88(1)87108(2)106
    Profit from discontinued operations2 -2---
    Profit for the year90(1)89108(2)106
           
    Attributable to:      
    Equity holders of the parent82 (1)81103(2)101
    Non-controlling interests8 -85-5
    Profit for the year90(1)89108(2)106

    Page 23

    Notes to the interim financial statements (continued)

    3) Adoption of new and revised accounting standards and interpretations (continued)

    Consolidated statement of financial position  
     As at 31 December 2018As at 30 June 2018
     As
      reported
    IFRS16RestatedAs
    reported
    IFRS 16 

    Restated
     £m£m£m£m£m£m
    ASSETS      
    Non-current assets      
    Property, plant and equipment367346713381370751
    Trade and other receivables881199771390
    Deferred tax assets24872552418249
    Other non-current assets2,157-2,1572,138-2,138
     2,8603643,2242,8373913,228
           
    Current assets      
    Trade and other receivables1,42941,4331,43221,434
    Other current assets1,243-1,2431,506-1,506
     2,67242,6762,93822,940
    Total assets5,5323685,9005,7753936,168
           
    LIABILITIES      
    Current liabilities      
    Lease liabilities(11)(153)(164)(12)(168)(180)
    Trade and other payables(1,237)3(1,234)(1,194)2(1,192)
    Provisionsa(202)21(181)(83)-(83)
    Other current liabilities(838)(1)(839)(1,479)-(1,479)
     (2,288)(130)(2,418)(2,768)(166)(2,934)
           
    Non-current liabilities      
    Lease liabilities(16)(280)(296)(22)(292)(314)
    Provisionsa(136)5(131)(146)29(117)
    Other non-current liabilities(2,309)-(2,309)(2,006)(1)(2,007)
     (2,461)(275)(2,736)(2,174)(264)(2,438)
    Total liabilities(4,749)(405)(5,154)(4,942)(430)(5,372)
           
    Net assets783(37)746833(37)796
           
    EQUITY      
    Share capital 388-388388-388
    Share premium 258-258258-258
    Reserves119(37)82188(37)151
    Equity attributable to equity holders of the parent765(37)728834(37)797
    Non-controlling interests18-18(1)-(1)
    Total Equity783(37)746833(37)796

    a The Group has historically recorded provisions for future operating lease expenditure when the future cost of a lease is greater than the benefits that the Group will derive from it. On the adoption of IFRS 16, future lease expenditure is included in the lease liability. The Group has therefore derecognised the part of its provisions that relates to future lease payments and replaced it with lease liabilities. The associated Right of Use asset has been impaired to the extent that it is not supported by the benefits that will be derived from the lease.

    Page 24


    Notes to the interim financial statements (continued)

    3) Adoption of new and revised accounting standards and interpretations (continued)

    Statement of cash flows  
     Year ended 31 Dec 2018Six months ended 30 June 2018
     As  As  
     reportedIFRS16RestatedreportedIFRS16Restated
     £m£m£m£m£m£m
    Operating profit2532627919312205
    Adjustments for non-cash and other items2401493892774101
    Increase in inventory(10)(10)(5)-(5)
    Increase in accounts receivable(40)(40)(20)-(20)
    Decrease in accounts payable(30)(30)(30)-(30)
    Net cash flow from operating activities before tax41317558816586251
    Tax paid(98)(98)(48)-(48)
    Net cash flow from operating activities  31517549011786203
           
    Investing activities      
    Purchases of non-current assets(114)-(114)(52)-(52)
    Proceeds on disposal of property, plant and equipment12-124-4
    Cash receipts from leases-55-33
    Other investing activities54-5438-38
    Net cash used in investing activities(48)5(43)(10)3(7)
           
    Financing activities      
    Interest paida(116)(27)(143)(76)(13)(89)
    Repayment of lease obligations(14)(153)(167)(3)(76)(79)
    Other financing activities(79)-(79)370-370
    Net cash (outflow)/inflow from financing activities(209)(180)(389)291(89)202
           
    Net increase in cashb and bank overdrafts58-58398-398
    Cashb and bank overdrafts at 1 January 2018571 -571571-571
    Effect of foreign exchange rate fluctuations on net cash held44-44(2)-(2)
    Cashb and bank overdrafts at the end of the period673-673967-967

    a Interest paid for the six months ended 30 June 2018 included £7m of interest paid relating to derivative financial instruments that was previously reported separately.
    b Cash including cash equivalents.

    IFRIC 23 – Uncertainty over income tax treatments

    The Group has adopted IFRIC 23 – Uncertainty over income tax treatments with effect from 1 January 2019. The interpretation clarifies the recognition and measurement requirements of IAS 12 - Income taxes in respect of: whether uncertain tax positions should be considered separately or together as a group; the approach that should be used to measure liabilities in respect of uncertain tax positions; and how to take into account assumptions about the examination of uncertain tax positions by taxation authorities.  The adoption of the interpretation had no material effect.

    There was no material effect from the adoption of any other new standards or interpretations in the period ended 30 June 2019.

    New standards not yet effective
    The Group has not early-adopted any standard, amendment or interpretation. A number of new standards, amendments to standards and interpretations are not yet effective for the period ended 30 June 2019. The directors are currently evaluating the impact of these new standards on the Group accounts:

    • IFRS 17 – Insurance contracts;
    • amendments to IFRS 3 – Definition of a business; and
    • amendments to IAS 1 and IAS 8 – Definition of material.

    4) Accounting estimates, judgments and assumptions

    The preparation of financial statements in conformity with adopted IFRSs requires management to make judgments, estimates and assumptions that affect the application of the Group’s accounting policies with respect to the carrying amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These judgments, estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, including current and expected economic conditions and, in some cases, actuarial techniques. Although these judgments, estimates and associated assumptions are based on management’s best knowledge of current events and circumstances, the actual results may differ.

    Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The judgments, estimates and assumptions which are of most significance in preparing the Group’s consolidated financial statements are the same as those that applied to the consolidated financial statements for the year ended 31 December 2018, except for the judgment with respect to the classification of leases which is no longer relevant as the Group is now applying IFRS 16 – Leases as explained in note 3.

    Page 25

    Notes to the interim financial statements (continued)

    5)  Operating segments and revenue
    The Group operates on a worldwide basis and derives its revenue and the majority of its operating profit from its four Secure Solutions regions: Africa, Asia, the Americas and Europe & Middle East, and its Cash Solutions division. The Group Executive Committee (the chief operating decision maker) reviews internal management reports for each of these reportable segments on a regular basis.

    Segment information for continuing operations is presented below:

     6 months

    ended

    30 June

    2019
    6 months

    ended

    30 June

    2018

    Restated1
    Year

    ended

    31 Dec

    2018

    Restated1
    Revenue by reportable segment£m£m£m
        
    Africa211198406
    Americas1,3091,1772,443
    Asia453434882
    Europe & Middle East1,2991,2992,644
    Total Secure Solutions3,2723,1086,375
    Cash Solutions5355611,132
    Total Revenue3,8073,6697,507
        
     Adjusted profit before interest, tax and amortisation (Adjusted PBITA) by reportable segment 
        
    Africa171633
    Americas6156131
    Asia 312965
    Europe & Middle East9287183
    Total Secure Solutions201188412
    Cash Solutions6064123
    Adjusted PBITA before corporate costs261252535
    Corporate costs(27)(28)(50)
    Adjusted PBITA234224485
    Specific items (net)7(7)(21)
    California class action settlement--(100)
    Guaranteed minimum pension equalisation charge--(35)
    Restructuring costs(36)(14)(31)
    (Loss)/profit on disposal/closure of subsidiaries/businesses(1)4(15)
    Goodwill impairment(35)--
    Amortisation of acquisition-related intangible assets(2)(2)(4)
    Operating profit 167205279

     1   Restated for the effects of IFRS 16 – Leases, see note 3.
    The Group’s revenue by customer type can be analysed as follows:

     6 months ended6 months endedYear ended
     30 June30 June31 Dec
     20192018 Restated12018 Restated1
    Revenue by customer type£m£m£m
    Major corporates1,3391,2492,556
    Government 8317761,615
    Financial institutions5916221,249
    Retail, leisure and consumers6266101,251
    Energy and utilities225213429
    Transport, ports and aviation195199407
    Total Revenue3,8073,6697,507

     1   Restated for the effects of IFRS 16 – Leases, see note 3.

                Page 26

    Notes to the interim financial statements (continued)

    6) Operating profit

    The income statement can be analysed as follows:

     6 months

    ended

    30 June
    6 months

    ended

    30 June
    Year

    ended

    31 Dec
     201920182018
      Restated1Restated1
    Continuing operations£m£m£m
        
    Revenue3,8073,6697,507
    Cost of sales(3,158)(3,029)(6,191)
    Gross profit6496401,316
    Administration expenses(442)(436)(1,033)
    Net impairment losses on financial and contract assets(7)(3)(11)
    Goodwill impairment(35)--
    Share of profit after tax from joint ventures247
    Operating profit167205279

    1 Restated for the effect of IFRS 16 – Leases, see note 3.

    Operating profit includes items that are separately disclosed for the six months ended 30 June 2019 related to:

    • Specific items charges of £5m (six months ended 30 June 2018: £8m, year ended 31 December 2018: £32m) relate to a review of legacy labour-related claims in Brazil. Specific items of £8m incurred during the six months ended 30 June 2018 related to additional provisions required in Asia in respect of historical employee gratuities. Specific items charges incurred during the year ended 31 December 2018 of £32m included £12m related to additional provisions in Asia in respect of historical employee gratuities and end of service benefits and £11m related to the reassessment of estimated settlement amounts in respect of historical workers’ compensation claims in the Americas. In addition, specific items included £9m of onerous contract charges related to the estimated losses over the expected remaining contract terms of UK Care & Justice contracts;
       
    • Specific items credits of £12m (six months ended 30 June 2018: £1m, year ended 31 December 2018: £11m) include £3m relating to the recovery of legacy claims in North America, and £9m related to the improved performance of two UK contracts. Specific item credits of £11m for the year ended 31 December 2018 included a £5m release of onerous contract provisions in the UK for which the related charges had previously been recorded as specific items following the implementation of operational efficiencies in the contracts leading to a reduction in expected future losses.  In addition, a further £5m related to successful court claims made by the Group in the Americas was recorded as a specific item;
       
    • Following the UK High Court Ruling in the case of Lloyds Banking Group Pension Trustees Limited vs Lloyds Bank plc (and others) in October 2018, the Group incurred a charge of £35m for the year ended 31 December 2018 in respect of the equalisation of benefits for historical Guaranteed Minimum Pension obligations between males and females in the UK;
       
    • In January 2019 the Group agreed the settlement of a class action relating to claims for employee meal and rest breaks for the period 2001 to 2010 in California. This settlement is subject to the final approval of the Superior Court of the State of California. The amount to be settled is between US$100m and US$130m with the precise amount to be determined during the settlement administration process. A provision of £100m was established in the accounts as at 31 December 2018 representing management’s best estimate of the class action settlement and any related costs;
       
    • Restructuring and separation charges of £36m (six months ended 30 June 2018: £14m, year ended 31 December 2018: £31m) include £17m in respect on the review of separation options for Cash Solutions and £19m relating to the 2018-2020 strategic productivity programme announced in 2017 which is being implemented across the Group, mainly in Europe & Middle East, the Americas and Cash Solutions. In addition, the Group incurred non-strategic severance costs of £5m (six months ended 30 June 2018: £4m year ended 31 December 2018: £9m)  which are included within cost of sales and administration expenses as appropriate;
       
    • During the period the Group recognised a small profit on disposal of a parking management business in Estonia offset by business closure costs resulting in a net loss on disposal of £1m (six months ended 30 June 2018: profit of £4m; year ended 31 December 2018: loss of £15m). In the first six months of 2018, the Group disposed of a number of operations including the businesses in Hungary and its archiving business in Kenya. During the second half of 2018 the Group also disposed of its Cash Solutions businesses in the United Arab Emirates, Colombia and Saudi Arabia;

    Page 27

    Notes to the interim financial statements (continued)

    6) Operating profit (continued)

    • The Group recognised a goodwill impairment of £35m (six months ended 2018 and year ended 31 December 2018: £nil) in respect of its Secure Solutions businesses in Brazil ("Brazil CGU") that were acquired in 2012. The impairment arose as a result of continued challenging trading conditions and the adverse macro-economic environment affecting the CGU that are expected to continue for a prolonged period. Those conditions have resulted in management reassessing its expectations for the future business performance in Brazil. The recoverable amount of the Brazil CGU is £38m, determined based on fair value less costs of disposal. This recoverable amount is dependent on a number of assumptions. Should the CGU fail to achieve its forecast, a decline of 10% in forecast EBITDA would result in an additional impairment of approximately £4m; and
       
    • Amortisation of acquisition-related intangible assets of £2m (six months ended 30 June 2018: £2m; year ended 31 December 2018: £4m).

    7) Disposals, closures and other transactions

    In the first six months of 2019 the Group sold a parking management business in Estonia realising net cash consideration of £5m. This business generated an Adjusted PBITA of £nil to the date of disposal (six months ended 30 June 2018: £1m).

    In the first six months of 2018 the Group sold four businesses including the Group’s businesses in Hungary and the Philippines and its archiving business in Kenya realising net cash consideration of £32m. In the second half of 2018 a further five businesses were sold, including the Cash Solutions businesses in the United Arab Emirates, Colombia and Saudi Arabia, realising additional net cash consideration of £13m and a small number of minor operations were closed. In addition, shareholder agreements were re-negotiated for certain joint ventures resulting in the Group obtaining control of these operations.

    The net assets and net (loss)/profit on disposal/closure of operations disposed of or closed were as follows:

     Six monthsSix monthsYear
     endedendedended
     30 June30 June31 Dec
     201920182018
      Restated1Restated1
     £m£m£m
        
    Goodwill -822
    Property, plant and equipment 61424
    Other non-current assets-34
    Current assets32251
    Liabilities(5)(16)(39)
    Net assets of operations disposed/closed43162
    Less: recycling from currency translation reserve -(1)(1)
    Net impact on the consolidated statement of financial position due to disposals/closures4 3061
    (Loss)/profit on disposal/closure of subsidiaries/businesses(1)4(15)
    Total consideration33446
        
    Satisfied by:   
    Cash received53348
    Disposal costs paid-(3)(4)
    Additional net consideration received relating to disposals completed in prior period221
    Net cash consideration received in the period73245
    Deferred consideration receivable -36
    Accrued disposal and other costs (4)(1)(5)
    Total consideration 33446

    1 Restated for the effect of IFRS 16 – Leases, see note 3.

    Other transactions

    During the six months ended 30 June 2019 the Group invested £4m on acquisitions including the purchase of a small Cash Solutions business in the Netherlands and an additional £4m to acquire the remaining non-controlling interests in two businesses in Latin America. The Group made no material acquisitions or payments to purchase non-controlling interests in the six months ended 30 June 2018 or the year ended 31 December 2018.

    Page 28

    Notes to the interim financial statements (continued)

    8) Net finance expense

     Six monthsSix monthsYear
     endedendedended
     30 June30 June31 Dec
     201920182018
      Restated1Restated1
     £m£m£m
        
    Interest and other income on cash, cash equivalents and investments9614
    Other finance income122
    Finance income10816
        
    Interest on bank overdrafts and loans (15)(8)(16)
    Interest on loan notes(28)(41)(81)
    Net interest (payable)/receivable on loan note related derivatives(6)(2)(7)
    (Loss)/gain arising from fair value adjustment to the hedged loan note items(3)56
    Gain/(loss) arising from change in fair value of derivative financial instruments hedging loan notes3(5)(6)
    Interest on lease liabilities(12)(15)(29)
    Other interest charges(3)(5)(9)
    Total Group borrowing costs(64)(71)(142)
    Finance costs on defined retirement benefit obligations(5)(5)(11)
    Finance expense(69)(76)(153)
        
    Net finance expense(59)(68)(137)

    1 Restated for the effect of IFRS 16 – Leases, see note 3.

    9) Tax

     Six monthsSix monthsYear
     endedendedended
     30 June30 June31 Dec
     201920182018
      Restated1Restated1
     £m£m£m
        
    Current taxation expense(38)(33)(75)
    Deferred taxation (expense)/credit(1)220
    Total income tax expense for the period(39)(31)(55)

    1 Restated for the effect of IFRS 16 – Leases, see note 3.

    The effective tax rate on continuing operations was 36% (2018: 23%). In general, the effective tax rate is a function of a variety of factors, with the most significant being (i) the geographic mix of the Group’s taxable profits and the respective country tax rates, (ii) changes in the value, and recognition of, deferred tax assets and liabilities, (iii) permanent differences such as expenses disallowable for tax purposes, (iv) irrecoverable withholding taxes, (v) the level of provision required for potential tax liabilities not agreed with tax authorities, (vi)  the impact of one-off items, and (vii) the overall level of profit against which the preceding items are measured.

    The higher effective tax rate compared with the prior period is primarily driven by: the impact of the Brazil impairment (see note 6) which has caused the re-assessment of the recoverability of certain deferred tax assets; the level of provision required for potential liabilities not agreed with tax authorities; and the relative amount of non-deductible expenses coupled with the geographic mix of profits.

    At 30 June 2019, the Group had recognised deferred tax assets of £274m (31 December 2018: £255m) based upon the latest view of expected future profitability of businesses in which these assets have been recognised.  Deferred tax liabilities of £8m (31 December 2018: £6m), current tax liabilities of £51m (31 December 2018: £56m) and current tax assets of £70m (31 December 2018: £64m) were also recognised. Deferred tax assets arise predominantly on tax losses and on deficits in defined benefit pension schemes.  At 30 June 2019, the Group had estimated tax losses of £312m (31 December 2018: £312m) which were not recognised as deferred tax assets.  Recognition of deferred tax assets is dependent upon the availability of future taxable profits based on business plans of the relevant legal entities.

    Page 29

    Notes to the interim financial statements (continued)

    9) Tax (continued)

    At 30 June 2019, the Group had capital losses available to carry forward of approximately £2.7bn (31 December 2018: £2.7bn).  These losses have no expiry date and only £144m (31 December 2018: £144m) has been agreed with the relevant tax authorities.  A deferred tax asset of £2m (31 December 2018: £2m) has been recognised on £13m of capital losses.  No deferred tax asset has been recognised in respect of remainder of the losses as the likelihood of their future utilisation is considered to be remote. 

    At 30 June 2019, the Group had adequate provision for liabilities likely to arise in accounting years which remain open to enquiry by tax authorities.  The global nature of the Group’s operations means that the most significant tax risk is in relation to challenges from tax authorities regarding the pricing of cross-border transactions and the Group’s interpretation of the OECD’s arm’s-length principle.  This risk is largely driven by the inherently subjective nature of transfer pricing and the divergent views taken by tax authorities. 

    In determining the appropriate level of provisions in respect of such challenges, the Group applies a risk-based approach which considers factors such as the quantum of the charge, the countries party to the transaction and the relevant statutes of limitation. An assessment is also made of the likelihood that compensating adjustments will be obtained under the relevant tax treaties to mitigate the level of double taxation which could arise.  As the Group operates in a significant number of countries, determining the appropriate level of provisions inevitably involves a significant level of judgment which is typically influenced by the Group’s constantly evolving experience of tax controversy in different countries.  The Group has open tax years in a number of countries involving a number of issues, with the most material disputes typically being in respect of cross-border transactions.

    At 30 June 2019, the Group had total tax exposures of approximately £124m (31 December 2018: £134m) of which £24m
    (31 December 2018: £25m) is provided against. The Group believes that it has made appropriate provision for open tax years which have not yet been agreed by tax authorities. The final agreed liabilities may vary from the amounts provided, as these are dependent upon the outcomes of the domestic and international dispute resolution processes in the relevant countries.  The Group typically has limited control over the timing of resolution of uncertain tax positions with tax authorities.  Acknowledging this inherent unpredictability, and on the basis of currently available information, the Group does not expect material changes to occur in the level of provisions against existing uncertain tax positions during the next twelve month period. 

    At any point in time, the Group is typically subject to tax audits in a number of different countries.  In situations where a difference of opinion arises between the Group and a local tax authority in respect of its tax filings, the Group will debate the contentious areas and, where necessary, resolve them through negotiation or litigation.  The Group relies upon advice and opinions from the Group tax department, local finance teams and external advisors, to ensure that the appropriate judgments are made when establishing accounting provisions in relation to such disputes.

    10) Dividends

     PenceDKK20192018
      per shareper share£m£m
         
    Amounts recognised as distributions to equity holders of the parent in the period    
    Final dividend for the year ended 31 December 20176.110.5097-95
    Interim dividend for the six months ended 30 June 20183.590.2969-55
    Final dividend for the year ended 31 December 20186.110.532195-
       95150
         
    Proposed interim dividend for the six months ended 30 June 20193.590.2905 55 

    An interim dividend of 3.59p (DKK 0.2905) per share for the six months ended 30 June 2019 will be paid on 11 October 2019 to shareholders on the register on 6 September 2019.

    Page 30

    Notes to the interim financial statements (continued)

    11) Earnings per share attributable to equity shareholders of the parent

     Six months
    ended
    Six months
    ended
    Year
    ended
     30 June30 June31 Dec
     201920182018
      Restated1Restated1
     £m £m £m
    (a) From continuing and discontinued operations   
        
    Earnings   
    Profit for the period attributable to equity shareholders of the parent5910181
    Weighted average number of ordinary shares2 (m)1,5471,5481,547
        
    Earnings per share from continuing and discontinued operations (pence)   
    Basic and diluted3.8p6.5p5.2p
        
    (b) From continuing operations   
        
    Earnings   
    Profit for the period attributable to equity shareholders of the parent5910181
    Adjustment to exclude profit in the period from discontinued operations (net of tax)--(2)
    Profit from continuing operations5910179
        
    Earnings per share from continuing operations (pence)   
    Basic and diluted3.8p6.5p5.1p
        
    (c) From discontinued operations   
        
     Earnings   
    Profit for the period from discontinued operations (net of tax)--2
    Earnings per share from discontinued operations (pence)   
    Basic and diluted--0.1p

    1 Restated for the effect of IFRS 16 – Leases, see note 3.
    2 Stated net of the average number of shares held in the Employee Benefit Trust of 5m (31 December 2018: 5m; 30 June 2018: 4m).

    12) Disposal groups classified as held for sale

    As at 30 June 2019 and 31 December 2018, assets classified as held for sale related to a property located in Europe & Middle East.

    In addition, as at 31 December 2018, and as at 30 June 2018, disposal groups classified as held for sale included the assets and liabilities associated with a minor operation in Asia that was sold in the first half of 2019.

    Page 31

    Notes to the interim financial statements (continued)

    13) Cash and cash equivalents, overdrafts and customer cash processing balances

    The Group’s Cash Solutions businesses provide a range of cash handling and processing services on behalf of customers. These services include collection, segregated storage and delivery of customer cash, with title to the cash handled remaining with the customer throughout the process. For these services, customer cash is never recorded in the Group’s balance sheet.

    A number of other cash processing services are provided to customers, such as the sale and purchase of physical cash balances, and the replenishment of ATMs and similar machines from customer funds held in Group bank accounts. These funds, which are generally settled within two working days, are classified as “funds within cash processing operations”, along with the related balances due to and from customers in respect of unsettled transactions, and are included gross within the relevant balance sheet classifications.

     As atAs atAs at
     30 June30 June31 Dec
     201920182018
     Funds within cash processing operations£m£m£m
        
    Stocks of money, included within cash and cash equivalents685159
    Overdraft facilities related to cash processing operations, included within bank overdrafts(23)(8)(22)
    Liabilities to customers in respect of cash processing operations, included within trade and other payables(45)(48)(43)
    Receivables from customers in respect of cash processing operations, included within trade and other receivables-56
    Funds within cash processing operations (net)---

    Whilst cash and bank balances used in these services are not formally restricted by legal title, they are restricted by the Group’s own internal policies such that they cannot be used for the purposes of the Group’s own operations. For the purposes of the Group’s consolidated statement of cash flow, funds within cash processing operations are therefore recorded net of the related balances due to and from customers in respect of unsettled transactions, within cash, cash equivalents and bank overdrafts, and hence have no impact on the Group’s statutory cash flow.

    A reconciliation of cash, cash equivalents and bank overdrafts at the end of the period per the consolidated statement of financial position to the corresponding balances included within the consolidated statement of cash flow is included in note 16.

    14) Retirement benefit obligations

    The Group’s main defined benefit scheme is in the UK which accounts for approximately 63% (31 December 2018: 62%) of the total net deficit of all of the defined benefit schemes operated by the Group. The majority of the scheme was closed to future accrual in 2011. The Group’s IAS 19 Revised (2011) Employee Benefits net pension deficit at 30 June 2019 recognised in the consolidated statement of financial position was £463m (31 December 2018: £364m) or £385m (31 December 2018: £302m) net of applicable tax in the relevant jurisdictions. The increase in the Group’s net pension deficit compared with the position as at
    31 December 2018 reflects a significant increase in the net deficit of the of the UK pension scheme together with a smaller increase in the deficits in the Group’s unfunded pension schemes.

    The increase in the UK scheme’s pension liabilities reflects the decrease in discount rates to 2.25% (31 December 2018: 2.85%) used to compute the scheme obligations following a reduction in corporate bond rates offset by the payment of scheduled deficit-repair contributions of £26m (six months ended 30 June 2018: £21m) during the period. The net increase in the pension liabilities was partially offset by a gain on the revaluation of the pension scheme assets.

    The triennial valuation in respect of the UK scheme is underway, during which we expect to agree the future deficit-repair contributions.

    Page 32

    Notes to the interim financial statements (continued)

    15) Provisions and contingent liabilities

     Employee benefitsRestructuringClaimsOnerous customer contracts1Property and other1,2Total
     £m£m£m£m£m£m
    As reported2042165147338
    Impact of IFRS 16 – Leases1---(21)(5)(26)
    At 1 January 2019 - restated12042163042312
    Additional provisions in the period31916-1250
    Acquisition of subsidiaries---1-1
    Utilisation of provisions(1)(16)(23)(7)(5)(52)
    Unused amounts reversed---(5)(1)(6)
    Exchange differences--1--1
    At 30 June 20192272101948306
           
    Included in current liabilities     167
    Included in non-current liabilities     139
          306
    1Restated for the effect of IFRS 16 – Leases, see note 3.
    2 Property and other includes £16m (2018: £15m) of provisions for property-related dilapidation costs. 

    The Group recognised additional claims provisions of £16m including £11m related to the estimated cost of the settlement of claims managed through the Group’s internal captive insurance companies and £5m relating to legacy labour-related claims in Brazil. Additional provisions of £19m were recorded in relation to restructuring costs for the 2018-2020 strategic productivity programme announced in 2018 (see note 6).

    As discussed in note 3, the Group has restated its provisions for onerous contracts on adoption of IFRS 16 to remove expected future payments for leased assets. Such payments are now reflected in lease liabilities with the related right of use asset impaired to the extent that the associated benefits are outweighed by the lease outflows. The resulting onerous contract provision at 30 June 2019 relates primarily to anticipated losses in respect of two UK PFI contracts that are expected to run for between 8 and 19 years. The unused amounts reversed of £5m reflects the reduction in expected future losses in one of those contracts (see note 6). In addition, improved trading in respect of one of the contracts for which an onerous contract provision was removed on adoption of IFRS 16 has resulted in a further £4m credit being recognised within specific items.

    The Group is involved in disputes in a number of countries mainly in respect of activities related to its operations. Currently there are a number of disputes open in relation to the application of local labour law, commercial agreements with customers and subcontractors and claims and compliance matters, in some cases in the course of litigation. In addition, the interpretation of labour laws and regulations in a number of countries where the Group operates is complex and there is inherent judgment made when applying those laws and regulations that are open to interpretation. As such, there is risk that further disputes and claims from employees could arise in the future. Where there is a dispute or where there is a risk of a dispute or claims in the future and where, based on legal counsel advice, the Group estimates that it is probable that the dispute will result in an outflow of economic resources, provision is made based on the Group’s best estimate of the likely financial outcome. Where a reliable estimate cannot be made, or where the Group, based on legal counsel advice, considers that it is not probable that there will be an outflow of economic resources, no provision is recognised.

    The Group is party to a number of on-going litigation processes in relation to interpretation of local labour law and regulations in a number of countries, where it is expected that these matters will not be resolved in the near future. At this stage, the Group's view is that these cases will either be resolved in a manner favourable to the interests of the Group or, due to the nature and complexity of the cases, it is not possible to estimate the potential economic exposure. In addition, in the ordinary course of business, other contingent liabilities exist where the Group is subject to commercial claims and litigation from a range of parties in respect of contracts, agreements, regulatory and compliance matters, none of which is expected to have a material impact on the Group.

    The investigation opened by the Serious Fraud Office (SFO) in 2013 in respect of the Group's Electronic Monitoring contract remains ongoing and the Group continues to engage and co-operate fully with the investigation. Based on currently available information, the Group is unable to make a reliable estimate of the financial effect of the SFO's investigation and no provision has been made in respect of it.

    The Group is currently involved in a number of claims in India, mainly related to periods prior to 2011, in relation to the interpretation of the basis for payments to the India Provident Fund. These disputes are currently awaiting court resolution. Based on the Group’s internal and external legal advice, and taking into account the judgment passed by the Supreme Court of India in respect of a different Provident Fund related question on 28 February 2019, the Group believes it has a strong legal position that will prevail in the courts such that no economic outflow is expected to occur and hence no provision has been booked at the period end. The aggregate of the Provident Fund related claims amount to approximately £50m. 

    Judgment is required in quantifying the Group's provisions, especially in connection with claims and onerous customer contracts, which are based on a number of assumptions and estimates where the ultimate outcome may be different from the amount provided.  Each of these provisions reflects the Group's best estimate of the probable exposure at 30 June 2019 and this assessment has been made having considered the sensitivity of each provision to reasonably possible changes in key assumptions.  Subject to the approval of the California class action settlement by the Superior Court of the State of California, the Group is satisfied that it is unlikely that changes in these key assumptions will have a material impact on the Group's overall provisioning position in the next 12 months.

    Page 33

    Notes to the interim financial statements (continued)

    16) Analysis of net debt

    A reconciliation of net debt to amounts in the consolidated statement of financial position is presented below:

      As atAs atAs at
      30 June30 June31 Dec
      201920182018
       Restated1Restated1
      £m£m£m
         
    Cash and cash equivalents 9551,3021,015
    Receivables from customers in respect of cash processing operations2 -56
    Bank overdrafts (310)(292)(305)
    Liabilities to customers in respect of cash processing operations3 (45)(48)(43)
    Total Group cash, cash equivalents and bank overdrafts  600967673
    Investments 766565
    Bank loans (630)(12)(305)
    Loan notes (1,806)(2,624)(1,997)
    Lease liabilities (398)(494)(460)
    Fair value of loan note derivative financial instruments 377233
    Total net debt (2,121)(2,026)(1,991)

    1Restated for the effect of IFRS 16 – Leases, see note 3.
    2 Included within trade and other receivables
    3 Included within trade and other payables

    17) Reconciliation of operating profit to net cash flow from operating activities of continuing operations

     As at
    30 June
    As at
    30 June
    As at
    31 Dec
     201920182018
      Restated1Restated1
     £m£m£m
        
    Operating profit167205279
    Adjustments for non-cash and other items:   
    Goodwill impairment35--
    Amortisation of acquisition-related intangible assets224
    Net loss/(profit) on disposal/closure of subsidiaries/businesses1(4)15
    Depreciation of property, plant and equipment102114236
    Amortisation of non-acquisition-related intangible assets111020
    Share of profit from joint ventures(2)(4)(7)
    Equity-settled share-based payments348
    (Decrease)/increase in provisions(4)-154
    Additional pension contributions(26)(21)(41)
    Operating cash flow before movements in working capital289306668
    Increase in inventories(10)(5)(10)
    Increase in receivables(75)(20)(40)
    Decrease in payables(15)(30)(30)
    Net cash flow from operating activities of continuing operations before tax189251588

    1 Restated for the effect of IFRS 16 – Leases, see note 3

    Page 34

    Notes to the interim financial statements (continued)

    18) Fair value of financial instruments

    The Group's financial instruments with carrying amounts significantly different to their fair values are shown below. For all other financial instruments, the carrying value is not considered to be materially different to the fair value.

      30 June30 June30 June30 June31 Dec31 Dec
      2019 20192018 201820182018
      Carrying
     amount
    Fair valueCarrying
     amount
    Fair valueCarrying
     amount
    Fair value
     Level*£m£m£m£m£m£m
    Loan notes carried at amortised cost       
    Public loan notes11,3831,4162,1552,2051,7351,729
    Private loan notes2423443469476262267

    The carrying amounts and fair values of the Group’s derivative financial instruments indicating those which are designated as hedging instruments are shown below:

       30 June30 June31 Dec
       201920182018
     Hedge relationshipLevel*£m£m£m
    Derivative assets carried at fair value     
    Interest-rate swapsFair value hedge21098
    Cross-currency swapsCash flow hedge2455935
    Cross-currency swapsNet investment hedge2-9-
          
    Derivative liabilities carried at fair value     
    Interest-rate swapsNot in a hedging relationship2(1)(1)(1)
    Cross-currency swapsCash flow hedge2(1)(5)-
    Cross-currency swapsNet investment hedge2(16)-(10)

    The Group’s investments of £76m (30 June 2018: £65m, 31 December 2018: £65m) are stated at fair value determined primarily using Level 1* inputs (i.e. using unadjusted quoted prices in active markets for identical financial instruments).  The fair values of financial instruments that are measured using techniques consistent with Level 2* of the valuation hierarchy (i.e. using inputs other than quoted prices in active markets that are observable for the asset and liability, either directly or indirectly) are calculated using discounted cash flow models. The relevant currency-yield curve is used to forecast the floating-rate cash flows anticipated under the instrument, which are discounted back to the balance sheet date.


    * Fair value hierarchy level, as defined by IFRS 13 - Fair value measurements. 

    19) Post balance sheet events

    On 9 August 2019, the Group announced that it had approved the separation of Cash Solutions from the Group and had set in train plans for a demerger of that business in the first half of 2020. The Group has previously announced that it has received a number of unsolicited expressions of interest to acquire part or all of the Cash Solutions businesses. In parallel with the demerger process, the Group will continue to evaluate these third party proposals, although no assurance can be provided at this stage that these will lead to a transaction.

    The Group has also announced that, as part of the separation process, it will be managing for value or exiting a number of non-core businesses and implementing programmes to deliver further identified operational efficiencies.  

    Page 35
    Alternative Performance Measures

    BASIS OF PREPARATION

    The Group applies the basis of preparation for its statutory results shown on page 22. To provide additional information and analysis which enables a full understanding of the Group’s results and to identify easily the performance of the Group’s ongoing businesses, the Group also makes use of a number of Alternative Performance Measures (APMs) in the management of its operations and as a key component of its internal and external reporting.  Those APMs are prepared and presented in accordance with the following basis of preparation. 

    Whilst broadly consistent with the treatment adopted by both the Group’s business sector peers and by other businesses outside of the Group’s business sector, these APMs are not necessarily directly comparable with those used by other companies.

    Adjusted results

    In order to allow a full understanding of its results, the Group separately discloses the effects on profit of strategic restructuring activities, acquisition related amortisation, goodwill impairments and profits or losses arising on the acquisition or disposal of businesses (together, “separately disclosed items”).  The Group also discloses separately those items that the Group believes need to be shown separately to allow a more fulsome understanding of the results for the period because of their size, nature or incidence (“specific items). For the year ended 31 December 2018 the Group also disclosed the impact of the California class action settlement and the impact of the guaranteed minimum pension equalisation (page 27).

    Adjusted measures of profit and earnings are stated before the effects of separately disclosed and specific items; the related tax effects; and tax-specific charges or credits which have a material impact such as those arising from changes in tax legislation. Adjusted measures of profit are provided to allow the trading results of the Group to be assessed separately from the effects of corporate actions (such as acquisitions, disposals and strategic restructuring) and the effects of significant or unusual items. 

    A reconciliation of Adjusted PBITA to operating profit is provided on page 10. 

    Underlying results

    To provide a better indication of the performance of the Group’s ongoing business for the period, the Group separately presents its underlying results.  Underlying results are defined as the adjusted results of the Group (i.e. stated before the effect of specific and separately disclosed items) excluding the results of onerous contracts and businesses that have been sold or closed in the current and comparative periods.  Underlying results for the comparative periods are re-presented to remove the effect of businesses disposed of or closed in the current period to enable a like-for-like comparison of the results of the Group’s on-going activities at the end of the most recent reporting period.  

    A reconciliation of the underlying results to the statutory results is included on page 3.

    Constant currency results

    In order to allow readers to assess the performance of the Group’s business before the effect of foreign exchange movements, the Group also presents its comparative results (excluding cash flows) retranslated to sterling using the average rates for the current period. Cash flows are not retranslated but are presented at historical exchange rates. Comparative results for hyperinflationary economies are translated at current period closing exchange rates when presenting constant currency results. For both 2019 and 2018 the only hyperinflationary economy in which the Group operated was Argentina.

    A reconciliation of the constant currency results for the period to the statutory results is included on page 40.

    Business reporting structure

    In line with its strategy for managing the business, the Group reports separately the underlying results of its Cash Solutions and Secure Solutions businesses.  The results for the Secure Solutions business are further divided geographically into the following regions:

    • Africa;
    • Americas; 
    • Asia; and
    • Europe & Middle East.

    The Group reports separately the results of onerous contracts and the results of its disposed businesses, being those that have been sold in the current period or prior periods. 

    These components, together with the impact of restructuring costs, specific items and other separately disclosed items constitute "continuing operations" under IFRS.  Discontinued operations, in accordance with IFRS 5, represent areas of the business which are being managed for sale or closure but which represent material business segments or entities. The Group has not classified any operations as discontinued in any of the periods presented. All amounts recorded as discontinued relate to businesses sold prior to 1 January 2017.

    Page 36

    Alternative Performance Measures

    Financial performance indicators

    The key financial measures used by the Group in measuring progress against strategic objectives are set out below, and are reconciled for the current period and prior period to the Group’s statutory results on pages 3 and 38-41:

    • Revenue

    Statutory revenue arising in each of the underlying, onerous contracts and disposed business components. Underlying revenue is a Key Performance Indicator (“KPI”).

    • Organic Growth

    Organic growth is calculated based on revenue growth at constant currency, adjusted to exclude the impact of any acquisitions during the current period or prior year.

    • Adjusted profit before interest, tax and amortisation (“Adjusted PBITA”)

    The Group uses Adjusted PBITA as a consistent internal and external reporting measure of its performance, as management views it as being more representative of financial performance from the normal course of business and more comparable period  to period. Adjusted PBITA excludes the effect of separately disclosed items (being restructuring costs, goodwill impairment, amortisation of acquisition-related intangible assets and profits or losses on disposal or closure of businesses) and specific items, which the Group believes should be disclosed separately by virtue of their size, nature or incidence, as explained on page 22. Further details explaining the reasons for excluding these items are provided on pages 41 and 42 of the Group’s 2018 Integrated Report and Accounts. Underlying Adjusted PBITA is a KPI.

    • Operating cash flow

    Net cash flow from operating activities before tax. Underlying operating cash flow excludes restructuring spend and is a KPI.

    • Operating cash flow conversion

    Operating cash flow presented as a percentage of Adjusted PBITA.

    • Earnings

    Profit attributable to equity shareholders of G4S plc. Underlying earnings is a KPI.

    • Earnings per share ("EPS")

    Profit attributable to equity shareholders of G4S plc, per share, from continuing operations. Underlying EPS is a KPI.

    • Net debt to adjusted EBITDA

    The ratio of total net debt, including investments, finance lease liabilities and cash and overdrafts within net assets of disposal groups held for sale, to adjusted earnings attributable to equity shareholders before interest, tax, depreciation and amortisation (‘Adjusted EBITDA’). This ratio is a factor in the board's assessment of the financial strength of the Group, and forms the basis of a key measure of compliance with covenants in respect of the Group's borrowing facilities.

    Certain of these financial performance indicators in respect of underlying results also form the basis of a significant element of performance measurement used in the determination of performance-related remuneration and incentives, as described on page 42 of the Group’s 2018 Integrated Report and Accounts.

    Page 37

    Alternative Performance Measures

    1. Reconciliation of operating profit to movements in net debt
     

     
    Six months
    ended
    30 June
    Six months
    ended
    30 June
    Year
    ended
    31 Dec
     201920182018
      Restated1Restated1
     £m£m£m
        
    Operating profit167205279
    Adjustments for non-cash and other items (see note 17)122101389
    Net working capital movement (see note 17)(100)(55)(80)
    Net cash flow from operating activities before tax (see note 17)189251588
    Adjustments for:   
    Separation and restructuring spend181026
    Cash flow from continuing operations207261614
    Analysed between:   
    Underlying operating cash flow206247584
    Disposed businesses2--
    Onerous contracts(1)1430
        
    Investment in the business   
    Purchase of fixed assets, net of disposals(64)(48)(102)
    New leases(25)(65)(110)
    Separation and restructuring spend(18)(10)(26)
    Disposal/closure of subsidiaries/businesses (see note 7)73245
    Acquisition of subsidiaries(4)(1)(4)
    Net debt in disposed businesses4(1)(12)
    Net investment in the business(100)(93)(209)
        
    Net cash flow after investing in the business107168405
        
    Other uses of funds   
    Net interest paid(81)(79)(126)
    Tax paid(47)(48)(98)
    Dividends paid(106)(104)(170)
    Purchase of own shares(8)(7)(11)
    Cash generated by discontinued operations8- 
    Transactions with non-controlling interests(4)-(1)
    Other227
    Net other uses of funds(236)(236)(399)
        
    Net (increase)/decrease in net debt before foreign exchange movements(129)(68)6
        
    Net debt at the beginning of the period(1,991)(1,954)(1,954)
    Effect of foreign exchange rate fluctuations(1)(4)(43)
    Net debt at the end of the period(2,121)(2026)(1,991)

    1 Restated for the adoption of IFRS16 – see note 3.

    Page 38

    Alternative Performance Measures

    B.      Reconciliation of changes in cash, cash equivalents and bank overdrafts to movement in net debt

     Six months
    ended
    Six months
    ended
    Year
    ended
     30 June 201930 June 201831 Dec
    2018
      Restated1Restated1
     £m£m£m
        
    Net (decrease)/increase in cash, cash equivalents and bank overdrafts (page 21)(68)39858
    Adjustments for items included in cash flow excluded from net debt:   
    Sale of investments103-
    Net movement in borrowings(134)(481)(103)
    Cash receipts from leases(3)(3)(5)
    Repayment of lease obligations8679167
    Items included in net debt but excluded from cash flow:   
    Net debt (excluding cash, cash equivalents and bank overdrafts) of disposed entities51(1)
    New leases(25)(65)(110)
    Net (increase)/decrease in net debt before foreign exchange movements(129)(68)6

    1 Restated for the adoption of IFRS16 – Leases, see note 3.

    C.      Group net debt: Adjusted EBITDA ratio

     Six months
    ended
    Year
    ended
    Six months
    ended
    Rolling 12 months toRolling 12 months to
     30 June 201831 Dec 201830 June 201930 June 201930 June 2018
     Restated1Restated1  Restated1
     £m£m£m£m£m
          
    Adjusted PBITA (page 17)224485234495490
          
    Add back:     
    Depreciation114236102224237
    Amortisation of non-acquisition-related intangible assets1020112121
    Adjusted EBITDA348741347740748
    Exclude EBITDA relating to businesses sold or closed in the period(1)3-4(7)
    Adjusted EBITDA excluding businesses sold or closed in the period347744347744741
          
    Net debt per note 16 1,991 2,1212,026
          
    Net debt: Adjusted EBITDA ratio 2.68x 2.85x2.73x

    1 Restated for the adoption of IFRS16 – Leases, see note 3.

    D.      Reconciliation of quarterly year-on-year organic growth

    Underlying results2018 Organic Growth 2019 Organic Growth
    Q1Q2H1Q3Q4FY Q1Q2H1
    Secure Solutions2.2%4.0%3.1%2.6%3.1%3.0% 4.6%4.4%4.5%
    Cash Solutions-24.6%-3.6%-15.3%3.5%-10.2%-9.8% 3.6%1.5%2.5%
     Cash Solutions ex RCS, NA-0.9%2.1%0.6%-0.4%0.4%0.4% 0.9%-2.1%-0.6%
    Total Group-2.7%2.8%0.0%2.8%0.9%0.9% 4.4%4.0%4.2%

    Organic Growth has been calculated by adjusting underlying constant currency revenue growth to remove the effect of acquisitions in the current and prior periods. In computing organic growth, 2019 revenue has been adjusted by £14m (of which £4m related to Cash Solutions and £10m to the Europe and Middle East region) to reflect the consolidation of a business that was first consolidated in 2018 following the renegotiation of its shareholder agreement.  2018 revenue has been adjusted by £3m to reflect the acquisition of a small Cash Solutions business in the Netherlands.

    Page 39

    Alternative Performance Measures
    E. Reconciliation of statutory results by segment to underlying results by segment

     Statutory resultsOnerous contractsDisposed businessesUnderlying results at actual ratesExchange differencesUnderlying results at constant rates
    Revenue by reportable segment (£m)      
           
    Six months ended 30 June 2019      
    Africa211--211-211
    Americas1,309--1,309-1,309
    Asia453--453-453
    Europe & Middle East1,299(60) -1,239-1,239
    Cash Solutions535 --535 -535
    Total Group revenue3,807(60)-3,747-3,747
            
    Six months ended 30 June 2018      
    Africa198-(1) 197 (3) 194
    Americas1,177 -- 1,177 25 1,202
    Asia434 -- 434 6440
    Europe & Middle East1,299 (56) (18) 1,225 2 1,227
    Cash Solutions561 -(44) 517(2) 515
    Total Group revenue3,669(56)(63)3,550283,578
            
    Year ended 31 December 2018      
    Africa406 -(1) 405 (6) 399
    Americas2,443 -- 2,443 33 2,476
    Asia882 - (1)881 8 889
    Europe & Middle East2,644 (118) (32) 2,494 (9) 2,485
    Cash Solutions1,132 -(78) 1,054 (5) 1,049
    Total Group revenue7,507(118)(112)7,277217,298
     

    Adjusted PBITA by reportable segment (£m)
          
           
    Six months ended 30 June 2019      
    Africa17--17-17
    Americas61--61-61
    Asia31--31-31
    Europe & Middle East92--92-92
    Cash Solutions60--60-60
    Adjusted PBITA before corporate costs 261--261-261
    Corporate costs(27)--(27)-(27)
    Total Group Adjusted PBITA 234--234-234
            
    Six months ended 30 June 2018      
    Africa16--16-16
    Americas56-157259
    Asia29--29-29
    Europe & Middle East871(1)87-87
    Cash Solutions64-266167
    Adjusted PBITA before corporate costs252122553258
    Corporate costs(28)--(28)-(28)
    Total Group Adjusted PBITA224122273230
            
    Year ended 31 December 2018      
    Africa33-134(1)33
    Americas131-21332135
    Asia65--65166
    Europe & Middle East1834(2)185-185
    Cash Solutions123 -7130-130
    Adjusted PBITA before corporate costs535485472549
    Corporate costs(50)--(50)-(50)
    Total Group Adjusted PBITA485484972499

    Page 40

    Alternative Performance Measures
    F. Reconciliation of underlying prior period results by segment

     Underlying
    as
     previously reported
    Movements in onerous contractsMovements in disposed businessesRestatement
    for
    IFRS 16
    Underlying results at actual ratesExchange differencesUnderlying results at constant rates
    Revenue by reportable segment (£m)       
            
    Six months ended 30 June 2018       
    Africa197 ---197 (3)194
    Americas1,177 ---1,177 251,202
    Asia434 ---434 6440
    Europe & Middle East1,231 6(12) -1,225 21,227
    Cash Solutions560 -(40) (3)517 (2)515
    Total Group revenue3,5996(52)(3)3,550283,578
             
    Year ended 31 December 2018       
    Africa405 ---405 (6)399
    Americas2,443 ---2,443 33 2,476
    Asia881 ---881 8 889
    Europe & Middle East2,501 -(7) -2,494 (9) 2,485
    Cash Solutions1,059 -- (5)1,054(5) 1,049
    Total Group revenue7,289-(7)(5)7,277217,298
     

    Adjusted PBITA by reportable segment (£m) 
          
             
    Six months ended 30 June 2018       
    Africa15--116-16
    Americas54-1257259
    Asia28--129-29
    Europe & Middle East831-387-87
    Cash Solutions60-3366167
    Adjusted PBITA before corporate costs24014102553258
    Corporate costs(28)---(28)-(28)
    Total Group Adjusted PBITA21214102273230
             
    Year ended 31 December 2018       
    Africa32--234(1)33
    Americas129--41332135
    Asia63--265166
    Europe & Middle East179-(1)7185-185
    Cash Solutions121--9130-130
    Adjusted PBITA before corporate costs524-(1)245472549
    Corporate costs(50)---(50)-(50)
    Total Group Adjusted PBITA474-(1)244972499
            
    Other financial KPIs (£m)       
            
    Six months ended 30 June 2018       
    Profit before tax15813(2)1603163
    Profit after tax12013(2)1222124
    Earnings11511(2)1152117
    Earnings per share - p7.40.10.1(0.1)7.40.17.6
    Operating cash flow1792264247-247
            
    Year ended 31 December 2018       
    Profit before tax365-(1)(2)3622364
    Profit after tax272-(1)(2)2691270
    Earnings259-(1)(2)2561257
    Earnings per share - p16.7-(0.1)(0.1)16.50.116.6
    Operating cash flow453-(2)133584-584


    Page 41

    Supplementary information

    For further enquiries, please contact:  
    Helen ParrisDirector of Investor Relations+44 (0) 207 9633189
       
    Media enquiries:  
    Sophie McMillanHead of Media+44 (0) 759 5523483
    Press office +44 (0) 207 9633333

    High resolution images and b-roll are available to download from the G4S media library, available through the results centre at www.g4s.com.

    Notes to Editors:
    G4S is the leading global 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 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 more than 550,000 employees. For more information on G4S, visit www.g4s.com.

    Presentation of Results:

    A webcast presentation to investors and analysts is taking place today at 09.00 hrs and can be viewed using the following link:

    http://view-w.tv/707-803-22180/en   

    Please note that there will also be a telephone dial-in facility for this event, for which details are as follows: 

    Standard International Access : +44 (0) 20 3003 2666
    UK Toll Free : 0808 109 0700
    Copenhagen : +45 3272 9273
    Denmark Toll Free : 8088 8649
    New York : +1 212 999 6659
    USA Toll Free: +1 866 966 5335

    Password: G4S

    Dividend payment information
    2019 Interim dividend:

    Announcement - 9 August 2019
    Ex-dividend date – 5 September 2019
    Last day to elect for DKK – 5 September 2019
    Record date – 6 September 2019
    Last day for DRIP elections – 20 September 2019 
    Post (1st class) – 10 October 2019
    Pay date – 11 October 2019

    Financial Calendar

    November 2019 – Q3 2019 Trading update

    Page 42

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