Emerging Market Risks Overshadow UK Security Firm G4S’s H1 Results

EDINBURGH — The world’s largest security group G4S said it was on track to meet annual revenue growth goals but its shares fell 6 percent on Wednesday after a long rally as investors homed in on growth risks in emerging markets.

Asked what were the main risks to the company’s 4 to 6 percent annual revenue growth targets, Chief Executive Ashley Almanza named Asian and Middle Eastern units.

Almanza also flagged Britain’s exit from the European Union as an “elevated uncertainty” dogging UK business, although he saw no specific British problems for G4S.

On the upside, he highlighted the strength of the potential pipeline of work, currently worth 7 billion pounds and was largely upbeat in his assessment of the outlook.

“The pipeline is in better condition than at any time I’ve been in charge of the company (…) but it’s our style, our nature, to be cautious,” he told analysts.

However its shares, which set a record high in recent weeks and have risen 40 percent this year, fell to their lowest in three months.

Jefferies analysts calculated the company had achieved around 3.5 percent in underlying or organic revenue growth in the second quarter, well below what it said were consensus expectations of around 7 percent and down from 8.9 percent in the first quarter.

While revenue growth was strong overall in the first half, particularly in the United States which accounts for the lion’s share, revenue in the Middle East and India shrank 7.8 percent.

Almanza, who took over in 2013, has turned the company around and its shares have outperformed a group of peers including outsourcer Capita, mired in problems similar to those of G4S four years ago, by 16 percent over two years.

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G4S has been reducing its dependency on Britain after it overstretched on sensitive loss-making government contracts. Britain and Ireland now provide 15 percent of G4S’s revenue versus 22 percent in 2013.

TURNAROUND SUSTAINED

Companies seeking clarity on details of Britain’s exit from the European Union are likely to be disappointed until a departure deal is done, Almanza said.

“Unquestionably there is elevated uncertainty in the UK regarding the near-term outlook,” he told reporters. “(Everyone) is waiting for clarity on how Brexit is going to affect the outlook and I think basically that we’re going to know when we get there.”

Net debt to earnings before interest, taxes, depreciation and amortisation stood at 2.7 times, setting it up to reach its target of 2.5 times or lower by the year end.

“The shares have rallied strongly over the last year as the market became more comfortable with the debt position and also the operational comparables have toughened. However, we believe that G4S’s turnaround will be sustained,” JP Morgan Cazenove said in a note to clients.

Attributable profit on continuing activities at constant exchange rates increased 7.6 percent to 128 million pounds in the six months to end-June on revenue up 6 percent to 3.7 billion pounds, meeting analyst expectations. The interim dividend was maintained at 3.59 pence per share.

“During the second half of 2017, our growth programme will focus on consolidating contract wins made over the past year and on converting attractive opportunities in our pipeline,” Almanza said in a statement.

An employer of 600,000 staff, G4S also installs and monitors alarms, closed-circuit television, gateway control and biometric systems.

(Editing by Paul Sandle and David Holmes)

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