The rehabilitation of G4S (GFS) - at least in the public consciousness - won't happen overnight. But a first-quarter (Q1) trading update, released ahead of an address by group chief executive Ashley Almanza, gives cause for encouragement. Since the start of the year G4S has secured new contracts worth around £950m, while boosting revenues, adjusted profits and operating cash flows. More importantly, there were no new onerous contract charges or impairments during the quarter and contract costs were within management’s existing loss provisions.
Cold comfort, some might say, but the security group is clearly intent on optimising a number of unprofitable legacy contracts, although that might not prove sufficient to alter public perceptions. Management is obviously determined to hive off marginal and non-core operations; the portfolio programme has already realised £283m through the exit of 24 businesses and there are a further 42 in line for sale or closure.
However, rationalisation measures will only take G4S so far. There's the issue of public trust and its attendant political ramifications. So the group is also striving to repair the damage to its credibility caused by a series of operational failures and PR gaffes, culminating in this year's allegations linked to the abuse of teenage inmates at the Medway Secure Training Centre in Kent. Given the scale and very nature of its operations, it would be perverse to think the group could ever avoid controversy, but issues such as the electronic tagging scandal went well beyond issues of competency.
The market reacted positively to the update, pushing the shares up by 4.8 per cent. This was also due, in part, to reports of an increase in sales outside the UK, including a step-up in activity linked to the Australian penal system. The New South Wales government recently confirmed it would introduce reforms to enable the private sector to compete with the public sector to run the nation's prisons - a traditional area of the Australian economy.
