G4S has just published its latest set of financials covering the whole of 2015. CEO Ashley Almanza said: “During 2015, we made substantial progress with the strategic and operational transformation of the business.” New contract sales with a total value of £2.4 billion (annual value £1.3 billion) have been recorded, with contract retention rates of circa 90%.
Almanza continued: “Our portfolio management programme combined with our investment in sales, innovation and re-structuring is reflected in the results of our continuing operations, where the Group’s revenues rose by 4% and underlying earnings by 14%. These programmes remain a priority, and are expected to sustain our growth and strengthen the balance sheet.”
In addition, Almanza said: “We continue to actively manage our onerous legacy contracts in the UK which were entered into prior to 2013. We have had to increase the provisions in relation to these contracts. We’ve also established robust controls governing new major contracts.”
He also commented: “Against a background of global economic uncertainty, demand for our services has remained resilient while growth accelerated in the second half of 2015, providing good support for further operating and financial progress in 2016.”
Financial and operational highlights
*New contract sales with a total value of £2.4 billion (annual value £1.3 billion) and contract retention rates of circa 90%
*Revenue increased by 4.0% to £6.4 billion. Emerging markets revenues are up 8.6%, North America up 5.8%, the UK down 3.0% and Europe up 2.6%
*PBITA increased by 5.7% to £427 million (2014: £404 million)
*Earnings of £227 million (2014: £199 million) are up 14.1%
*Underlying operating cash flow was £460 million compared with £528 million in 2014, mainly due to a temporary increase in working capital associated with strong revenue growth in the second half of 2015 and transition to a UK shared service centre
*Significant progress has been made with portfolio management, increasing strategic focus and raising £281 million to date. Further businesses identified for disposal are expected to generate additional proceeds of between £250 million and £350 million over the next 12-24 months
*Net debt at December 2015 was £1,782 million (2014: £1,639 million). Net debt/EBITDA is 3.3x (2014: 3.0x). The business plan supports a reduction in net debt to a level of net debt/EBITDA of 2.5x or lower in the next 12-24 months
*The Board recommends a final dividend of 5.82 pence per share (2014: 5.82 pence)
12 months ended 31 December 2015
|2015||2014 restated||2015||2014 restated|
|Revenue||£6,433 million||£6,187 million||£6,863 million||£6,889 million|
|PBITA||£427 million||£404 million||£391 million||£397 million|
|Earnings||£227 million||£199 million||£8 million||£145 million|
|EPS||14.7 pence||12.9 pence||0.5 pence||9.4 pence|
The Group’s statutory earnings of £8 million is after charging onerous contract provisions of £65 million, restructuring of £44 million, losses on businesses being sold or closed of £40 million and non-cash charges of £106 million relating to the amortisation/impairment of goodwill.
The Group has made substantial progress with the strategic plan established in November 2013:
Against a background of economic uncertainty, G4S won new contracts with an annual value of over £1.3 billion (2014: £1.14 billion) and total contract values of £2.4 billion (2014: £2.1 billion) while, at the same time, replenishing its pipeline which had an annual value of £5.7 billion at the end of 2015.
G4S continues to sustain contract retention rates of around 90% although lower volumes drawn under these contracts have partially offset the positive impact of new contracts. In the current economic environment, G4S fully expects demand for its services to grow by around 4-6% per annum.
The business continues to identify and invest in opportunities to innovate and sell new services and products, including systems and technology, across its key markets. G4S is also investing in progressively embedding a consistent approach to sales operations, pipeline and account management and customer service improvement.
G4S continued to invest in improving efficiency through the successful execution of re-structuring and productivity programmes. The positive effects of both are reflected in the Group’s commercial, operational and financial performance for 2015. Further benefits are expected to be extracted in 2016.
Financial discipline and portfolio management
Portfolio management remains important for strategic focus, capital discipline and performance management. As reflected in these results, since 2013 G4S has divested 23 businesses (with revenues of circa £900 million), realising proceeds of £281 million, and a further 38 businesses (with revenues of circa £300 million) are being sold or exited.
Overall, these businesses had revenues of £1.2 billion and £30 million PBITA losses.
Through its continuing portfolio management programme, G4S also expects to exit a number of other businesses with combined revenues of circa £400 million in the next 12 to 24 months (among them G4S Israel, UK Utility Services, US Youth Justice Services and UK Children’s Services).
G4S expects the sale of these businesses and the 38 businesses previously identified to materially improve its strategic focus and realise further sales proceeds of between £250 million and 350 million.
The business has continued to effectively manage onerous legacy contracts in the UK. As a result of a material increase in the number of asylum seekers received between November 2015 and January 2016, G4S has increased the Compass onerous contract provision by £20 million to £31 million. The company has also increased the onerous contract provision on a number of other legacy UK contracts.
G4S continues to manage these contracts closely and efficiently and has established robust controls over new contracts to ensure that the Group effectively evaluates and manages contract risk. During 2015, these controls have been reviewed and tested by the Group Risk and Group Internal Audit functions to ensure that they’re robust.
The Group’s business plan supports a net debt/EBITDA ratio of 2.5x or lower in the next 12-24 months.