Following several very public controversies, the latest of which centres on its UK children's services business, the corporate activities of G4S (GFS) have hardly been synonymous with the 'feelgood factor' in recent years. The security group, under the stewardship of chief executive Ashley Almanza, has responded by working its way through a number of unprofitable legacy contracts, instituting a restructuring programme and introducing increasingly robust strictures on major new contracts. However, given the scale of the group's operations and the inherent timeframes, any turnaround won't be accomplished overnight. There are certainly signs of meaningful reforms, but reported operating profits for 2015 were still down 27 per cent on the previous year at £183m.
Earnings were constricted through a now familiar roll call of one-off charges. These figures included £66m of impairments, of which a chunk related to a business in Estonia. Other charges followed onerous contract provisions and restructuring costs, together with non-cash charges of £106m relating to the amortisation and impairment of goodwill. Mr Almanza has also been assessing the viability of G4S's unwieldy global operations and has identified around 65 businesses that it wants to close or hive off. More than £280m has been raised from the sale of businesses so far, and the company expects to raise a further £250m-£350m via disposals over the next two years.
Management warned that the group could lose a further £57m if the UK government decides to extend a highly contentious contract to house asylum seekers in Britain. Under the terms of the existing contract, G4S provides accommodation, transportation and basic services for asylum seekers while their claims are being processed. A surge in the number of people seeking asylum has rendered an already marginal enterprise wholly unprofitable. The 'compass' asylum seeker contract commenced in 2012 and runs to 1 September 2017, with a potential extension of a further two years. It's now clear that security groups like G4S that have got into bed with the Home Office are losing money on every asylum seeker they're contracted to look after.
Prior to these figures, JPMorgan Cazenove expects adjusted pre-tax profits of £352m for 2016, leading to EPS of 16.65p.
| G4S (GFS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 200.7p | MARKET VALUE: | £3.11bn | |
| TOUCH: | 200.6p-201.2p | 12M HIGH / LOW: | 310p | 188p |
| DIVIDEND YIELD: | 4.7% | PE RATIO: | 335 | |
| NET ASSET VALUE: | 43p* | NET DEBT: | 258% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 7.00 | 257 | 13.3 | 8.53 |
| 2012 | 7.20 | 158 | 6.8 | 8.96 |
| 2013 | 7.10 | -190 | -17.3 | 8.96 |
| 2014 | 6.89 | 128 | 4.2 | 9.24 |
| 2015 | 6.86 | 78 | 0.6 | 9.41 |
| % change | -0.4 | -39 | -86 | +2 |
Ex-div: 28 Apr Payment: 10 Jun *Includes intangible assets of £1.96bn, or 126p a share. | ||||
