Cash out of G4S

‘Secure solutions’ accounted for over four-fifths of revenue in 2019, split across security solutions and the much smaller ‘care and justice’ operation. The division provides services such as risk consulting, and mobile and remote security. It is looking to shift more towards “technology-enabled” security solutions, which comprised 47 per cent of the division’s sales last year. The group is also keen to increase the 11 per cent of revenue it gets from ‘secure consulting and technology’, given expected adjusted operating margins of 8-15 per cent versus 5-6 per cent for the secure solutions division. 

The pivot follows an agreement to sell almost two-thirds of its conventional cash collections business to US security specialist Brink’s. This came more than a year after it started “reviewing options” to separate the entire cash solutions division. Cash solutions encompasses ‘conventional cash’ and the faster-growing ‘cash technology’, which involves providing software. The disposal is for an enterprise value of £727m, £93m lower than the £820m sum-of-the-parts valuation put on the business by broker RBC. 

It’s not a clean break, with RBC calling the pensions millstone a “poison pill” to divesting the domestic cash business. The UK represented the bulk of the £411m net pension deficit in 2019, up from £364m a year earlier. Net debt has also remained stubbornly high. From £1.55bn in 2013, net debt reached £2.09bn last year (including £310m in lease liabilities), equivalent to 2.88 times cash profits (Ebitda). The £670m net cash proceeds from the sale to Brink’s should reduce leverage to within the target range of 2 to 2.5 times Ebitda. 

G4S’s tendency to adjust earnings for hefty exceptional charges muddies the profitability picture (see chart below). Last year saw a £291m goodwill impairment, largely relating to the UK cash solutions business as cash usage declines. This helped almost halve statutory operating profit to £145m, while the adjusted figure came in 4 per cent higher at £501m.