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G4S shares fall as 2017 revenue and earnings miss analysts' expectations

“The outlook for the group is positive," said chief executive Ashley Almanza
G4S
G4S said trading in the Middle East and India will begin to stabilise this year

British security services group G4S PLC (LON:GFS) delivered an increase in full year revenue in line with its expectations of growth across all regions apart from the Middle East and India.

Revenue rose 3.2% to £7.4bn at constant exchange rates in 2017 despite a 5.1% decline in the Middle East & India, where G4S said it has been “adjusting to the challenging trading environment”.

Ahead of its full results, G4S cut its revenue guidance in a November trading update for growth of between 3% and 4% from a previous estimate of 4% to 6%.

READ: G4S upgraded by Citi ahead of expected acceleration in organic growth

Adjusted profit before interest, tax and amortisation (PBITA) climbed 4.2% to £496mln at constant currencies and the adjusted PBITA margin rose to 6.7% from 6.6%.

UBS repeats 'sell' rating

"Organic growth at 3.2% was light of our forecast of 3.6% and adjusted EBITA at £496mln was around 1% light of our forecasts," said UBS

UBS said the results imply fourth quarter organic revenue growth was slightly negative, largely driven by North America decelerating in the second half due to the fall out of installation work in the Cash Solutions business that supplies cash management services and software systems. 

UBS left its rating at 'sell' with a target price of 75p, saying it expects earnings to fall in 2018.

Shares dropped 3.2% to 255p around midday trading.

G4S raises dividend, says outlook positive

G4S recommended a final dividend of 6.11p, up 5% on the previous year. The total dividend payout for the year was 9.70p, a 3% rise on 2016.

The operating cash flow from core businesses decreased 16.7% to £527mln. The company said the decline reflected its move to revert to a “more customary level” of operating cash generation following a strong performance in the prior year.

“G4S has delivered another year of profitable growth and good cash generation, enabling us to invest in our growth, technology and productivity programmes and, at the same time, strengthen our balance sheet,” said chief executive Ashley Almanza.

“The outlook for the group is positive: our strong market positions, commercial discipline, growing technology-related revenues, positive cash generation and on-going productivity programmes provide substantial confidence that the Group is well positioned to deliver a strong performance over the next three years."

G4S expects trading in Middle East and India will begin to stabilise this year.

Total revenues are predicted to rise by an average of 4% to 6% per year while restructuring efforts are expected to deliver recurring operating gains of £70mln to £80mln by 2020. Further refinancing gains of around £20mln are also expected by 2020.

G4S said it intends to use excess cash for investment, dividends and further leverage reduction. It plans to increase the dividend “in line with the long-term growth in earnings”.

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