The UK and Ireland was the only market where G4S saw a decline in revenue in the first six months of the year, according to the multi-national security company’s latest half year results for the first half of 2016. The fall of 1.9pc, from £574m to £563m, the firm put down mainly ‘to lower volumes in our employment service business’.
G4S said that the staggered increase in the Living Wage which came into effect in April 2016 and the Apprenticeship Levy is estimated to have a 1-2pc adverse impact on 2016 profit before tax for the UK and Ireland region. The company said that it continued to actively manage its ‘legacy onerous contract portfolio, mainly in the public sector’. The firm described its UK and Ireland bidding pipeline as ’broad-based and has grown in the areas of facilities management, security systems and cash outsourcing’.
Generally, however, the company could point to overall growth in revenue (up 5.1 per cent, to £3.1 billion) and profit (up 8.2 per cent, to £199m), ‘driven by volume growth and much improved productivity in our developed markets’. That improved productivity the company put down to ‘systematic restructuring and productivity programmes’ of the last two to three years; that is, since the new G4S Chief Executive Officer Ashley Almanza joined, taking over from Nick Buckles, who left the firm in the wake of the embarrassment over the shortfall of guards before the London 2012 Olympics.
As for productivity, the company spoke of a focus on ‘lean end-to-end processes in our manned security business. Our aim is to provide efficient straight-through processing from order to cash and we are piloting the development of this system in Ireland and the UK manned security businesses. We firmly believe that this will improve the consistency of operational delivery and materially reduce the Group’s operating costs …’
As for the global nature of G4S’ business, revenue in UK and Ireland for the year was £563m, out of £1893m from ‘developed markets’, which included the rest of Europe and North America. Revenue from ‘emerging markets’ came to £1193m, divided into Africa, Asia-Pacific, Middle East and India; and Latin America. As with another multi-national security firm, Securitas, the ‘emerging’ markets show higher growth than the ‘developed’.
On Brexit
As for the June vote for the UK to leave the European Union (EU), the board said it has considered the risks and opportunities. “The Group operates mainly within national boundaries and is typically subject to security national licensing regulations in each territory, and is relatively well positioned with around 80 per cent of revenues outside the UK and minimal cross border trading. Depending on the nature of the terms of the UK’s exit from the EU around the free movement of capital and labour, this could result in a shortage of skills or workforce availability in the UK market. Equally, it is not yet clear if or how key employment laws would change once the UK is no longer a member of the EU. The terms of the UK’s exit from the EU remain unclear and could affect a range of business factors and conditions including the availability of skilled labour, regulation and taxation. It is also possible that the continuing period of uncertainty lowers economic growth in both the UK and Europe which could affect both our customers and our competitors. The Group will continue to monitor closely developments …”
Comment
After the security contractor’s announcement, Joshua Raymond, Market Analyst and FX Broker at XTB.com, said: “G4S share prices charged higher yet again on Wednesday after the firm reported a strong jump in profits. The security outsourcing company saw revenues rise by 5.1 per cent to £3.1bn whilst profits before tax grew 8.2 per cent to £199m.
“This is a solid report for the firm as it continues to let its performance metrics do the talking in face of its recent PR mishaps and fraud scandals. It’s new contract wins totalling £1.4bn in the first half of the year, which comes on top of its current contract pipeline valued at £6.3bn, shows the firm remains attractive as a specialist outsourcing and this gives shareholders renewed confidence that its proposition remains untarnished.
“It’s no surprise therefore that G4S share prices rose more than 10 per cent on market open, hitting a six month high in the process. This earnings report could well be the confidence boost needed to spur a longer term revival in its share price, which before today’s open had fallen by 39pc to hit new lows at the end of June. The buyers we have seen this morning are targeting a return in share price to the 260p level.”
