G4S 2012 results

by Mark Rowe

Ask anyone what the contractor G4S’ 2012 was like and they will probably remember the short-fall over the London Olympics guarding contract. However G4S has pointed to developing markets and outsourcing trends in its preliminary results for last year.

For a TV interview with G4S chief Nick Buckles click here.

The company’s turnover rose 10.4 per cent to £7.5 billion, which includes the Olympic and Paralympic Games contract revenue of £204m. As reported last issue, G4S settled with Games organisers LOCOG on an Olympic contract loss of £70m. While the company’s shares dipped sharply in July when the short-fall became public days before the Games opened, the share price has this year gone above its pre-Olympic level. The company reports organic growth of 10 per cent in developing markets, which brought one-third of the company’s total; and the firm is aiming to raise that to half by 2019. While some rivals wondered – or hoped – that the Olympic affair would harm G4S’ reputation or even prompt the Coalition to take work away from the firm, G4S has made the point that it began new contracts of about £200m annual value with the UK government in 2012; and reported organic growth in the UK government sector of 13pc. In the jargon of company reports, the firm says that the ‘pipeline of UK government outsourcing opportunities remains strong, particularly in areas such as rehabilitation, facilities management, police and health sectors’.

The contractor spoke of ‘service excellence centres’ set up for its core services: manned security and ‘cash solutions’, namely cash in transit and handling. While debate continues in contract guarding companies as to whether or how to offer solely security or security as part of a ‘bundled’ facilities management service, G4S says that security remains core to global strategy and continues to provide growth opportunities. The firm claimed a strong global contract ‘pipeline’ of £3.5 billion a year across a range of sectors. Nick Buckles, Chief Executive Officer, said: “Our 2012 financial results reflect the significant exceptional costs associated with the Olympic contract and our overhead reduction programme together with the large impairment charge related to the discontinued US Government Solutions business.

Despite these issues, the underlying business has performed well in 2012 with an acceleration in organic turnover growth to 7 per cent and with margins holding at over 7pc. The acceleration in organic growth was due largely to a number of new North American commercial and UK government contracts and continued strong growth in developing markets and was achieved despite continued economic challenges in Europe. Our developing markets business now accounts for a third of group revenues and continues to grow strongly and our recent acquisitions in Brazil, Vanguarda and Interativa, are performing well. The breadth of our portfolio in over 125 countries continues to present many new growth opportunities and we continue to see good opportunities for outsourcing in key sectors such as government, financial institutions, aviation, oil and gas, mining and ports. Our market leading businesses, broad customer base and £3.5bn per annum contract pipeline give us confidence in the outlook for the group.”

The company, which has about 620,000 employees, also spoke of restructuring, mainly in Continental Europe, which led to £35m annualised savings. “During 2012 the group undertook a detailed review of the overhead structure across all reporting levels and geographies to maximise efficiency and eliminate duplication. Restructuring generated a headcount reduction of over 1,500 positions.” Of the 1514 positions cut, 58 were in the UK.

There was what the firm termed excellent organic growth of 8pc in the UK and Ireland with the main growth drivers being the integrated services business, which provides facilities services to UK government and businesses, and the utilities services business which is consolidating its position as a leading meter reading and smart meter installation business. As for its UK Government work, in February it began total facilities management for the Ministry of Justice at more than 340 court buildings across the Midlands, Wales and the North of England.

As for outsourcing for the police, the Lincolnshire Police contract dating from April 2012 has gone extremely smoothly with excellent service delivery, according to the contractor, and will result in savings of £28m over ten years. The Lincolnshire contract includes a framework agreement for ten other police forces and G4S is continuing to have discussions with a number of police forces regarding similar outsourcing.

In austerity-hit Ireland, trading conditions ‘remained challenging’ in 2012, said G4S. For the results in full visit the G4S website.

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