Shares in G4S PLC (LON:GFS) headed lower this morning despite the security services provider boosting its revenues and underlying profits in the first half of the year.
The ongoing restructuring programme is on track to deliver savings of between £90mln and £100mln by 2020, G4S said, but investors’ concerns seem to be centred on the growth – or lack of – in its emerging markets business.
Solid overall, North America key driver
In the six months ended 30 June, overall revenues grew 6.2% to £3.7bn (H1 2016: £3.5bn) while underlying profits (PBITA) increased by 5.9% to £235mln.
At the end of the half, the sales pipeline stood at £7bn, while net debt fell to £1.6bn and that figure is expected to fall further throughout the rest of the year.
The security group has proposed an interim dividend of 3.59p, the same amount it paid out last year.
G4S hailed the “good growth” it experienced in North America, which is now by far its biggest individual territory in terms of revenue.
Sales in the region jumped almost 21% to £1.04bn (H1 2016: £862mln), although underlying profits only rose by 18.8% to £57mln (H1 2016: £48mln) as it was forced to invest in capacity to support its growing Stateside businesses.
The North America division won a lucrative new retail cash solutions contract with a major US retailer during the period, as well as a new contract with a “large social media network”.
FTSE 100-listed G4S said there was “strong interest” in its services more generally from customers across the pond, adding that there was still an “exciting opportunity for further growth”.
UK and Europe solid, India and Middle East disappoint
The group made solid progress in Europe with sales up 4.1% to £654mln (H1 2016: £628mln) and underlying profits jumping 26% to £48mln (H1 2016: £38mln).
UK and Ireland saw more muted top line growth as revenues edged 1.9% higher to £649mln (H1 2016: £637mln), although profitability improved thanks to the ‘financial efficiencies’ derived from the restructuring, with underlying profits up 15% to £158mln (H1 2016: £137mln).
Trading in the Middle East and India held back the emerging markets business, which was broadly flat in terms of revenue at £1.37bn (H1 2016: £1.37bn), although underlying profits dipped to £103mln ( H1 2016: £106mln).
G4S’s Indian business was hit by the demonetisation process, while the sustained low oil prices weighed on the trading environment in the Gulf. This is what seems to be worrying investors at the moment.
Making ‘substantial progress’ with transformation
“We continued to make substantial progress with G4S's transformation and this provides increased confidence in the group's prospects,” said chief executive Ashley Almanza.
“The scale and quality of our pipeline is materially improved and this, together with our on-going investment in sales operations and new products and services, provides stronger support for our organic growth plans.
“During the second half of 2017, our growth programme will focus on consolidating contract wins made over the past year and on converting attractive opportunities in our pipeline.
“We expect full year revenue growth in 2017 to be broadly in line with our medium term aim of 4-6% and we anticipate continued growth in 2018.”
Bouncing back from recent issues
Shares have almost doubled over the past twelve months as the markets have started to warm to G4S’s restructuring programme as well as some encouraging results.
The company had a rough few years before the transformation programme was brought in, though.
In 2012 it failed to meet its London Olympics security contract forcing the UK government to draft in 3,500 British troops due to a shortage of adequately trained staff.
Then chief executive Nick Buckles admitted shortly after that that whole saga had been a “humiliating shambles”. Following that ordeal, G4S was named the ‘worst company of the year’ at the 2013 Public Eye awards.
Last summer it was in the headlines for the wrong reasons once again after one of its guards, Omar Mateen, went on a mass-shooting spree at a gay nightclub in Florida.
Most recently were the riots at HM Prison Birmingham, which is operated by G4S, shortly before Christmas last year.
Shares fell 6.9% at the opening bell to 312.7p.
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