G4S

A Corporate Profile

By Corporate Watch
Updated June 2012

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Finances & Investors

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Finances

Read any newspaper article about G4S and you are more than likely to be told the company is the biggest employer on the London Stock Exchange, with over 650,000 staff and “operations” in more 125 countries. These facts are written big throughout its annual report, suggesting, as they do, size and success. However, the company’s accounts show its finances are not as impressive as its favourite stats may suggest.[1]

2011 saw the company post £198 million in profit, from a turnover of £7.5 billion. This was £50 million lower than the previous year's profits but would have been higher were it not for the £55 million incurred in the failed takeover of ISS.

The company’s balance sheet, though hardly precarious, does not inspire the same confidence. G4S has total assets of £5.6 billion against liabilities of £4.1 billion, leaving it with equity of £1.5 billion (assets – liabilities = equity). Look closer at the assets column and you'll see that £2.2 billion of these liabilities are accounted for as ‘goodwill’.

Goodwill is the value of a company over and above its tangible assets (although, confusingly, software is often counted as goodwill). A potentially profitable start-up company with a great idea for vacuum cleaners, for example, would not be bought for the value of the chairs and desks in its office, but the perceived value of the money that company's vacuums can make in the future.

G4S’ accounts show the excess of goodwill on its balance sheet came from its previous incarnation as Group 4 Falck’s acquisition of Securicor in 2011. It paid more for the company than its ‘book value’ as it had intangible qualities that were deemed worth paying more than the tangible value on the balance sheet.

Chief among G4S’ qualities is its perceived knowledge of how to run services. This will provoke hollow laughter from anybody who has suffered from the company’s cost-cutting, often brutal, approach to service provision, but it’s not in doubt that the company has governments convinced. Still, £2.2 billion remains a huge amount of goodwill. If the company loses half of its goodwill, for example, its equity would be reduced to £400 million. Much more and the accountants would start getting itchy.

G4S is also carrying a significant level of debt. Its accounts show it owes around £900 million in loans to banks, and almost £1.2 billion due through loan notes issued since 2007 to unknown investors. £830 million of these notes are private, £350 million are publicly traded (known as Eurobonds). G4S has recently added to this debt by issuing a £489 million Eurobond in March 2012.[2]

The interest on the bank loans amounted to around £200 million in 2011, with the average cost of borrowing almost 5%. This is not excessive in corporate terms – it has a BBB credit rating at the time of writing - but is significantly more than the public sector would pay for financing.

Investors

Major investors as of February 2012:

PRUDENTIAL PLC	6.33%
BLACKROCK, INC	4.96%
HARRIS ASSOCIATES LP	4.93%
LEGAL & GENERAL GROUP PLC	3.97%
FRANKLIN RESOURCES, INC. via its funds	3.41%
LLOYDS BANKING GROUP PLC via its funds	3.06%
INVESCO LTD. via its funds	2.30%
LONGVIEW PARTNERS LIMITED via its funds	2.06%
AEGON NV via its funds	1.87%
GOVERNMENT OF NORWAY via its funds	1.64%
STATE STREET CORPORATION via its funds	1.45%
MARATHON ASSET MANAGEMENT via its funds	1.30%
UBS AG via its funds	1.28%
AFFILIATED MANAGERS GROUP INC via its funds	1.11%
NCH PUMPKIN LIMITED via its funds	1.11%
PUBLIC INSTITUTION FOR SOCIAL SECURITY via its funds	1.02%
VANGUARD GROUP, INC. via its funds	0.95%
HSBC HOLDINGS PLC via its funds	0.87%
SAS RUE LA BOETIE via its funds	0.84%
INVESTEC PLC via its funds	0.79%
N MAS UNO IBG SA via its funds	0.76%
TRILOGY GLOBAL ADVISORS, LLC via its funds	0.76%
SKY INVESTMENT COUNSEL INC via its funds	0.73%
MARATHON ASSET MANAGEMENT, L.P. via its funds	0.67%
ALLIANZ SE via its funds	0.65%
SCHRODERS PLC via its funds	0.65%
CAZENOVE CAPITAL HOLDINGS LTD. via its funds	0.64%
AVIVA PLC via its funds	0.61%
HENDERSON GROUP PLC via its funds	0.60%
CANTILLON CAPITAL MANAGEMENT LLC via its funds	0.58%
DEUTSCHE BANK AG via its funds	0.57%
GENERAL ELECTRIC COMPANY via its funds	0.57%
BARCLAYS PLC via its funds	0.53%
F&C; ASSET MANAGEMENT PLC via its funds	0.51%
NORTHERN TRUST CORPORATION via its funds	0.49%
STICHTING PENSIOENFONDS ABP via its funds	0.49%
ABERDEEN ASSET MANAGEMENT PLC via its funds	0.46%
JP MORGAN CHASE & CO. via its funds	0.43%
ROYAL LONDON MUTUAL INSURANCE SOCIETY LTD via its funds	0.39%
SVENSKA HANDELSBANKEN via its funds	0.39%
G4S EMPLOYEE BENEFIT TRUST	0.38%
UNIVERSITIES SUPERANNUATION SCHEME LIMITED via its funds	0.38%
STANDARD LIFE PLC via its funds	0.37%
BP P.L.C. via its funds	0.35%
CREDIT SUISSE GROUP AG via its funds	0.35%
GOVERNMENT OF SINGAPORE via its funds	0.35%
COVEA via its funds	0.30%
NFU MUTUAL INSURANCE ASSOCIATION LIMITED via its funds	0.29%
SPAREBANK 1 GRUPPEN via its funds	0.29%
FOUR CAPITAL PARTNERS LIMITED via its funds	0.28%
GOLDMAN SACHS GROUP, INC via its funds	0.27%
STATE OF CALIFORNIA via its funds	0.27%
MIZUHO FINANCIAL GROUP via its funds	0.25%
SOCIÉTÉ GÉNÉRALE via its funds	0.25%
BNP PARIBAS via its funds	0.24%
PETERCAM S.A. via its funds	0.23%
BANK OF NEW YORK MELLON CORPORATION via its funds	0.22%
DIMENSIONAL FUND ADVISORS LP via its funds	0.22%
SKANDINAVISKA ENSKILDA BANKEN AB via its funds	0.22%
QUILTER & CO. LTD. via its funds	0.21%
REGERINGSKANSLIET via its funds	0.20%
SMITH & WILLIAMSON HOLDINGS LTD via its funds	0.20%
WEST YORKSHIRE PENSION FUND via its funds	0.20%
ACKERMANS EN VAN HAAREN NV/SA via its funds	0.19%
CONCERNED PARENTS AND TEACHERS OF WYCOCOMAGH AND AREA via its funds	0.19%
INTERNATIONAL CONSOLIDATED AIRLINES GROUP, S. A via its funds	0.19%
AXA, via its funds	0.18%
GOVERNMENT OF SAUDI ARABIA via its funds	0.18%
RATHBONE BROTHERS PLC via its funds	0.18%
GROUPE CRÉDIT MUTUEL-CIC via its funds	0.17%
STATE OF NEW YORK via its funds US	0.17%
SUMITOMO MITSUI TRUST HOLDINGS, INC via its funds	0.17%
BANK OF NOVA SCOTIA (THE) - SCOTIABANK via its funds	0.16%
JYSKE INVEST FUND MANAGEMENT A/S via its funds	0.16%
PICTET & CIE via its funds	0.16%
ZÜRCHER KANTONALBANK via its funds	0.15%
BUCKLES NICK	0.14%
CORNELIAN ASSET MANAGERS LIMITED via its funds	0.14%
LOMBARD, ODIER, DARIER, HENTSCH & CIE via its funds	0.14%
POLAR CAPITAL HOLDINGS PLC via its funds	0.14%
TEACHERS INSURANCE & ANNUITY ASSOCIATION OF AMERICA via its funds	0.14%
CHEVIOT ASSET MANAGEMENT LIMITED via its funds	0.13%
DEXIA via its funds	0.13%
PROVINCE DE QUÉBEC via its funds	0.13%
SPEIRS & JEFFREY LIMITED via its funds	0.13%
TORONTO DOMINION BANK via its funds	0.13%
AZIMUT HOLDING SPA via its funds	0.12%
DNB ASA via its funds	0.12%
DANSKE BANK A/S via its funds	0.11%
IRISH LIFE & PERMANENT GROUP HOLDINGS via its funds	0.11%
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (THE) via its funds	0.11%
PARTNERS GROUP HOLDING AG via its funds	0.11%
PGGM VERMOGENSBEHEER B.V. via its funds	0.10%

References
[1] G4S Annual Reports and Accounts 2011
[2] J Cox & N Maidment, ‘G4S hits investor sweet spot with 600 million euro bond’, Reuters, 20.4.12