G4S: 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 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 July 2012:

BLACKROCK INC 6.36%
PRUDENTIAL PLC 5.06%
M&G INVESTMENT FUNDS 5.04%
SKAGEN STICHTING ADMINISTRATIEKANTOOR 5.00% (DIRECT)
BPCE SA via its funds 4.94%
HARRIS ASSOCIATES LP 4.93%
BLACKROCK INVESTMENT MANAGEMENT (UK) LTD 4.89% (DIRECT)
FRANKLIN RESOURCES INC via its funds 3.39%
LLOYDS BANK PLC via its funds 3.12%
LEGAL AND GENERAL GROUP PLC 3.00%
FORMUEPLEJE A/S FONDMAEGERSKLAB via its funds 2.94%
INVESCO LTD via its funds 2.42%
LONGVIEW PARTNERS LTD via its funds 2.06%
AEGON MV via its funds 1.72%
GOVERNMENT OF NORWAY via its funds 1.64%
STATE STREET CORPORATION via its funds 1.37%
MARATHON ASSET MANAGEMENT via its funds 1.29%
SAS RUE LA BOETIE via its funds 1.24%
NCH PUMPKIN LIMITED via its funds 1.11%***
PUBLIC INSTITUTION FOR SOCIAL SECURITY via its funds 1.10%
UBS AG via its funds 1.10%
HSBC HOLDINGS PLC via its
funds
1.01%
AFFILIATED MANAGERS GROUP PLC via its
funds
0.99%
BANK OF NEW YORK MELLON via
its funds
0.96%
VANGUARD GROUP INC, THE via its funds 0.96%
INVESTEC PLC via its funds 0.82%
BREWIN DOLPHIN HOLDINGS PLC via its
funds
0.77%
HENDERSON GROUP PLC via its funds 0.77%
TRILOGY GLOBAL ADVISORS via its funds 0.75%
SKY INVESTMENT COUNSEL INC via
its funds
0.73%
MARATHON ASSET MANAGEMENT LP via its funds 0.67%
DEUTSCHE BANK AG via its funds 0.65%
SCHRODERS PLC via its funds 0.65%
ALLIANZ SE via its funds 0.62%
AVIVA PLC via its
funds
0.61%
F&C ASSET MANAGEMENT PLC via its
funds
0.60%
CANTILLION ASSET MANAGEMENT PLC via its
funds
0.46%
CANTILLION ASSET MANAGEMENT via its funds 0.59%
CAZENOVE CAPITAL HOLDINGS LTD via its funds 0.56%
NORTHERN TRUST CORPORATION via its funds 0.55%
BARCLAYS PLC via its funds 0.54%
JP MORGAN CHASE & CO via its funds 0.48%
ABERDEEN ASSET MANAGEMENT PLC via its funds 0.46%
STICHTING PESIOENFONDS ABP via its funds 0.46%
GENERAL ELECTRIC COMPANY via its funds 0.44%
ROYAL LONDON MUTUAL INSURANCE LTD via its funds 0.41%
NFU MUTUAL INSURANCE ASSOCIATION
LIMITED via its funds
0.39%
G4S EMPLOYEE BENEFIT TRUST via its funds 0.38% (DIRECT)
STANDARD LIFE PLC via its funds 0.37%
BP PLC via its
funds
0.35%
UNIVERSITIES SUPERANNUATION SCHEME LTD via its funds 0.35%
GOVERNMENT OF SINGAPORE via its funds 0.34%
COVEA via its funds 0.31%
COVEA PENSION via its funds 0.31%
SVENSKA HANDELSBANKEN via its funds 0.30%
SPAREBANK 1 GRUPPEN via its funds 0.29%
FOUR CAPITAL PARTNERS via its funds 0.28%
STATE OF CALIFORNIA via its
funds
0.27%
DJE KAPITAL AG via
its funds
0.26%
MIZUHO FINANCIAL GROUP via its funds 0.25%
BNP PARIBAS via its funds 0.24%
CREDIT SUISSE GROUP AG via
its funds
0.24%
FMR LLC via its
funds
0.23%
SOCIETE GENERALE via its
funds
0.23%
DIMENSIONAL FUND ADVISORS LP via its funds 0.22%
AXA via its funds 0.21%
REGERINGSKANSLIET, via its funds 0.21%
ACKERMANS EN VAN HAAREN NV/SA via its
funds
0.20%
GOLDMAN SACHS GROUP INC via its funds 0.20%
JYSKE INVEST FUND MANAGEMENT A/S via its funds 0.20%
QUILTER & CO LTD via its funds US 0.20%
SKANDINAVISKA ENSKILDA BANKEN AB
via its funds
0.20%
SMITH AND WILLIAMSON HOLDINGS PLC via its funds 0.20%
WEST YORKSHIRE PENSION FUND via
its funds
0.20%
CONCERNED PARENTS AND TEACHERS OF WYCOMAGH AND AREA via its funds 0.19%
INTERNATIONAL CONSOLIDATED AIRLINES GROUP SA via its funds 0.19%
RATHBONE BROTHERS PLC 0.19%
GOVERNMENT OF SAUDI ARABIA via
its funds
0.18%
GROUPE CREDIT MUTEL-CIC
via its funds
0.17%
PETERCAM SA via its funds 0.17%
STATE OF NEW YORK via its funds 0.17%
BANK OF NOVA SCOTIA (THE) SCOTIABANK via
its funds
0.16%
PICTET & CIE via its funds 0.16%
DANSKE BANK via its funds 0.15%
LOMBARD ODIER DARIER HENTSCH & CIE 0.15%
ZURCHER KANTONALBANK via its funds 0.13%
BUCKLES NICK 0.14% (DIRECT)
CORNELIAN ASSET MANAGERS LTD via its funds 0.14%
POLAR CAPITAL HOLDINGS PLC via its funds 0.14%
CARTESIO INVERSIONES SGIIC SA via its funds 0.13%
CHEVIOT ASSET MANAGEMENT via its funds 0.13%
PROVINCE DE QUEBEC via its
funds
0.13%
SPEIRS & JEFFREY LTD via its funds 0.13%
SUMITOMO MITSUI TRUST HOLDINGS INC 0.13%
TEACHERS INSURANCE & ANNUITY ASSOCIATION OF AMERICA 0.13%
TORONTO DOMINION BANK via its funds 0.13%
AZIMUT HOLDING SPA via its funds 0.12%
DEXIA via its funds 0.12%
DNB ASA via its funds 0.12%
MORGAN STANLEY via its funds 0.12%
PARTNERS GROUP HOLDING AG via its funds 0.12
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY (THE) via its funds 0.11%
PERMANENT TSB GROUP HOLDINGS PLC via its funds 0.11%
UNICREDIT SPA via its funds 0.11%
PGGM VERMOGENSBEHEER BV via its funds 0.10%
DIGHTON TREVOR 0.09% (DIRECT)

*** The Co Operative Asset Management owns shares in G4S through NCH Pumpkin. However, the Co Op has announced that it plans to sell the Co Operative Asset Management to Royal London.

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