G4S to underpin its balance sheet and focus on emerging markets – Half Yearly Results

Ashley Almanza - G4S
Ashley Almanza - G4S

G4S, the largest security services provider in the world, spanning 125 countries announced its half yearly results today. The new G4S Chief Executive, former British Gas executive, Ashley Almanza (Almanza) announced an increase in turnover of £3.65 billion with margins tightening by .4 percent (5.5% from 5.9% in 2012) Almanza also announced plans to raise £600 million through the sale of shares and assets to underpin the balance sheet of G4S. This would allow the management to focus on running the business and rebuilding its image.

Over the past eighteen months G4S has been beset with problems ranging from the aborted takeover of Scandinavian soft services provider ISS to manpower delivery issues at the 2012 London Olympics. More recently, the UK Ministry of Justice (MOJ), alleged gross misconduct over invoicing on its Electronic Monitoring services. Almanza announced today that, “G4S has engaged the law firm Linklaters to review these billings. In the event that G4S becomes aware of any evidence of misconduct then appropriate action will be taken by the company including, where applicable, referral to the relevant authorities. We will also reimburse the MOJ any amounts found to have been overpaid. In August, G4S advised the MoJ that it had withdrawn from the bidding process for the next generation of electronic monitoring contracts.”

Commenting on the G4S results Almanza said;

“There was strong demand for our services across key markets and industry sectors in the first half of the year which resulted in continued revenue growth. Growth was particularly strong in developing markets where we have excellent market positions. There are significant growth opportunities in our key markets and this is reflected in our growing contract pipeline of around £4 billion per annum.

“On a like-for-like basis, half-year profits were in line with the same period in 2012 against a background of challenging trading conditions in Europe and in our cash solutions businesses in the UK and Ireland.

“We are divesting a number of non-core businesses, which will improve our strategic focus and realise substantial cash proceeds. We have announced two disposals today with combined cash proceeds of around £100 million and we have a well advanced process to sell two other businesses in the US. We are also considering other disposals and these together with those already announced have the potential to raise up to £250 million.

“We need to strengthen our balance sheet to be able to realise the group’s opportunity for substantial value creation. Today we have announced our intention to raise funds via a 9.99% placing of new ordinary shares. This, together with our disposals program and a renewed focus on cash flow management will enable us to invest in sustainable, profitable growth and reduce our debt to a level which supports our goal of maintaining a long term net debt to EBITDA ratio of less than 2.5x.

“On the operational front, we plan to introduce systems and processes to improve efficiency and risk management and we will be restructuring a number of businesses to ensure that they are more competitive and able to deliver improved margins.

“Our unique geographic footprint, strong market positions and the skills and capabilities embodied in our employees, coupled with our diverse and global customer base provide us with a solid foundation from which we can continue to build the business.

“Our strong contract pipeline, strengthened balance sheet, focused investment programme and improved operational and financial management all support the delivery of revenue growth, operational efficiencies and improved cash generation. In the near term, 2013 will be a year of consolidation for the group with the actions we are now taking starting to deliver tangible benefits during 2014.”

Headline figures included:

  • Sales up 7.2%, organic growth of 5.4%. Organic growth of 13% in developing markets
  • Underlying PBITA of £201 million (2012: £202 million1)
  • Strong and growing global contract pipeline of £4 billion per annum across a diverse range of sectors and regions, supports prospects for sustainable profitable growth
  • Cash generated from operations £218 million
  • A review of the group’s assets and liabilities has resulted in a one-off charge of £180 million
  • Net debt position as at 30 June 2013 was £1,950 million. The group is intending to raise funds via a 9.99% placing of new ordinary shares today
  • Agreed sale of Canadian Cash solutions business and Colombia Data solutions for proceeds of around £100 million. Sale of US businesses progressing to schedule
  • Interim dividend unchanged at 3.42p

Underlying Results

H1 2013 H1 2012
Turnover £3,648m £3,402m
Organic growth +5.4%
PBITA £201m £202m
Operating margin 5.5% 5.9%
Underlying EPS 6.6p 7.6p

G4S Website