As anticipated, the G4S Group has “delivered a marked improvement in revenue generation” in the second quarter of 2018, with an impressive organic growth level of 2.8% resulting in half-year organic growth of 0.2% against “demanding comparatives”.
G4S CEO Ashley Almanza commented: “Our contract wins and strong retention rate in the first half of 2018 provide revenue momentum into the second half of the year. This, together with growing technology-enabled services in both our cash and security businesses, a favourable sales mix and planned productivity benefits underpins the Group’s positive outlook for the full year.”
First half of the year highlights for G4S are numerous. Aside from the positive step change in revenue growth for Q2, there have been new contract wins of £0.7 billion (annual contract value). The Secure Solutions margin stands at 5.9% (2017: 5.9%), while the Cash Solutions margin is at 10.7% (2017: 11.0%), duly reflecting increased business development and operating costs. Operating cash flow conversion is 84% (2017: 80%) in line with the seasonal norm.
The Group was re-organised on 1 January this year to consolidate the Secure Solutions businesses into four regions (namely Africa, the Americas, Asia and Europe and the Middle East) and create a global Cash Solutions division.
The Group is now implementing a productivity programme which is designed to deliver £90 million-£100 million of recurring cost savings by 2020. A portion of these gains will be re-invested in growth, with the majority expected to benefit the bottom line.
The operational and overhead components which are expected to deliver £70 million to £80 million of savings by 2020 have, to date, been largely re-invested in sales, business development and enhanced support and control systems.
From the second half of this year, states G4S, the savings will begin to make a net contribution to profits.
The financing efficiency component of around £20 million has been secured through refinancings completed in 2018, with the benefits beginning to flow through to profits next year.
In the first half of 2018, 42% (FY 2017: 39%) of G4S’ Secure Solutions revenues were derived from technology-enabled security services combining people with technology. The Group has established a substantial business selling technology-enabled solutions to larger customers. With proven success in that segment, G4S is now extending its offer into the medium-sized customer market.
G4S expects “significantly improved cash generation” from its Care & Justice Services operation over the next 12-to-18 months as the business continues to be highly selective when it comes to bidding and negotiating for new business and as certain legacy contracts expire or otherwise improve.
In its Cash Solutions business (which accounts for 16% of Group revenues), G4S provides software, hardware, systems and services that improve the security, control and efficiency of customers’ cash handling. While cash usage is forecast to continue to grow in emerging markets, in developed markets cash volumes are expected to gradually decline. To ensure critical mass and economies of scale, G4S focuses on markets where it has (or can build) a Number One or Number Two position.
G4S aims to grow volumes in traditional cash services of Cash-in-Transit and ATMs organically through cost leadership which enables the business to win market share and encourages banks to outsource more services.
In announcing its latest set of financials, the company states: “We believe that the Group is well positioned to address a substantial and valuable opportunity to extend and grow our new products and services that are being adopted by banks and some of the world’s leading retailers. We expect this market to continue to grow strongly, and we have market-leading and innovative products combining software and service. We’re making significant progress with large retailers with what we refer to as our ‘Big Box’ solution, and we’re also seeing increasing interest in our mid-size and small box offers. We believe that our Cash Technology services have the potential to produce profits greater than the global profits from our traditional cash business in the medium term.”
Ashley Almanza concluded: “Since 1 January, the creation of a global cash division and the consolidation of our Secure Solutions regions are providing us with the strategic, commercial and operational focus needed for the next stage of the Group’s development. Combining technology with our established security offer is strengthening our sales mix and contract retention. We intend to remain soundly financed with operating cash conversion of more than 100% of Adjusted PBITA and a net debt to Adjusted EBITDA ratio of 2.5x or less. The priorities for excess cash will be investment, dividends and, in the near term, further leverage reduction.”